[Federal Register Volume 86, Number 224 (Wednesday, November 24, 2021)]
[Notices]
[Pages 67238-67299]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-25486]



[[Page 67237]]

Vol. 86

Wednesday,

No. 224

November 24, 2021

Part III





National Credit Union Administration





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The NCUA Staff Draft 2022-2023 Budget Justification; Notice

  Federal Register / Vol. 86 , No. 224 / Wednesday, November 24, 2021 / 
Notices  

[[Page 67238]]


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NATIONAL CREDIT UNION ADMINISTRATION

[NCUA-2021-0149]


The NCUA Staff Draft 2022-2023 Budget Justification

AGENCY: National Credit Union Administration (NCUA).

ACTION: Notice.

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SUMMARY: The NCUA's draft, ``detailed business-type budget'' is being 
made available for public review as required by federal statute. The 
proposed resources will finance the agency's annual operations and 
capital projects, both of which are necessary for the agency to 
accomplish its mission. The briefing schedule and comment instructions 
are included in the SUPPLEMENTARY INFORMATION section.

DATES: Requests to deliver a statement at the budget briefing must be 
received on or before November 30, 2021. Written statements and 
presentations for those scheduled to appear at the budget briefing must 
be received on or before 5 p.m. Eastern, December 3, 2021.
    Written comments without public presentation at the budget briefing 
may be submitted by December 9, 2021.

ADDRESSES: You may submit comments by any of the following methods 
(Please send comments by one method only):
     Presentation at public budget briefing: Submit requests to 
deliver a statement at the briefing to [email protected] by 
November 30, 2021. Include your name, title, affiliation, mailing 
address, email address, and telephone number. Copies of your 
presentation must be submitted to the same email address by 5 p.m. 
Eastern, December 3, 2021.
     Written comments: Submit comments by December 9, 2021, 
through the Federal eRulemaking Portal: http://www.regulations.gov. The 
docket number is NCUA-2021-0149. Follow the instructions for submitting 
comments.
     Copies of the NCUA Draft 2022-2023 Budget Justification 
and associated materials are also available on the NCUA website at 
https://www.ncua.gov/About/Pages/budget-strategic-planning/supplementary-materials.aspx.

FOR FURTHER INFORMATION CONTACT: Eugene H. Schied, Chief Financial 
Officer, National Credit Union Administration, 1775 Duke Street, 
Alexandria, Virginia 22314-3428 or telephone: (703) 518-6571.

SUPPLEMENTARY INFORMATION: The following itemized list details the 
documents attached to this notice and made available for public review:

I. The NCUA Budget in Brief
II. Introduction and Strategic Context
III. Forecast and Enterprise Challenges
IV. Key Themes of the 2022-2023 Budget
V. Operating Budget
VI. Capital Budget
VII. Share Insurance Fund Administrative Budget
VIII. Financing the NCUA Programs
IX. Appendix A: Supplemental Budget Information
X. Appendix B: Capital Projects

    Section 212 of the Economic Growth, Regulatory Relief, and Consumer 
Protection Act amended 12 U.S.C. 1789(b)(1)(A) to require the NCUA 
Board (Board) to ``make publicly available and publish in the Federal 
Register a draft of the detailed business-type budget.'' Although 12 
U.S.C. 1789(b)(1)(A) requires publication of a ``business-type budget'' 
only for the agency operations arising under the Federal Credit Union 
Act's subchapter on insurance activities, in the interest of 
transparency the Board is providing the agency's entire staff draft 
2022-2023 Budget Justification (draft budget) in this Notice.
    The draft budget details the resources required to support NCUA's 
mission. The draft budget includes personnel and dollar estimates for 
three major budget components: (1) The Operating Budget; (2) the 
Capital Budget; and (3) the Share Insurance Fund Administrative Budget. 
The resources proposed in the draft budget will be used to carry out 
the agency's annual operations.
    The NCUA staff will present its draft budget to the Board at a 
budget briefing open to the public and scheduled for Wednesday, 
December 8, 2021 at 2:00 p.m. Eastern. Due to the COVID-19 pandemic, 
the budget briefing will be open to the public via live webcast only. 
Visit the agency's homepage (www.ncua.gov) to access the provided 
webcast link.
    If you wish to participate in the briefing and deliver a statement, 
you must email a request to [email protected] by November 30, 
2021. Your request must include your name, title, affiliation, mailing 
address, email address, and telephone number. The NCUA will work to 
accommodate as many public statements as possible at the December 7, 
2021 budget briefing. The Board Secretary will inform you if you have 
been approved to make a presentation and how much time you will be 
allotted. A written copy of your presentation must be delivered to the 
Board Secretary via email at [email protected] by 5 p.m. Eastern, 
December 3, 2021.
    Written comments on the draft budget will also be accepted by 
December 9, 2021, through the Federal eRulemaking Portal: http://www.regulations.gov. The docket number is NCUA-2021-0149. Commenters 
should follow the portal instructions for submitting comments.
    All comments should provide specific, actionable recommendations 
rather than general remarks. The Board will review and consider any 
comments from the public prior to approving the budget.

    By the National Credit Union Administration Board on November 
17, 2021.
Melane Conyers-Ausbrooks,
Secretary of the Board.

I. The NCUA Budget in Brief

Proposed 2022 and 2023 Budgets

    The National Credit Union Administration's (NCUA) 2018-2022 
Strategic Plan sets forth the agency's goals and objectives that form 
the basis for determining resource needs and allocations. The annual 
budget provides the resources to execute the strategic plan, to 
implement important initiatives, and to undertake the NCUA's major 
programs: Examination and supervision, insurance, credit union 
development, consumer financial protection, and asset management.

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[GRAPHIC] [TIFF OMITTED] TN24NO21.002

    The NCUA's 2022-2023 budget justification includes three separate 
budgets: The Operating Budget, the Capital Budget, and the National 
Credit Union Share Insurance Fund Administrative Budget. Combined, 
these three budgets total $345.3 million for 2022, which is 0.5 percent 
more than the initial 2022 funding level approved by the NCUA Board as 
part of the two-year 2021-2022 budget, and 1.2 percent higher than the 
comparable level funded by the Board for 2021.
    Four significant factors, when combined, result in the 1.2 percent 
budget growth between 2021 and 2022:

    1. A proposed 48 FTE net increase in permanent agency staffing 
compared to 2021, which will support critical areas necessary to 
operate as an effective federal financial regulator capable of 
addressing emerging issues.
    2. A proposed increase of $8.6 million in travel funding for 
2022 compared to 2021. Although the agency expects pandemic-related 
considerations will result in continued remote and offsite 
examinations during the first quarter of 2022, the draft budget 
assumes that onsite examinations and related travel will resume in 
the spring of 2022. The agency anticipates that travel in 2022 will 
occur at a lower level than in previous years due to lessons learned 
during the pandemic about remote work.
    3. A proposed reduction to the Capital Budget of $5.8 million in 
2022 compared to 2021, mainly driven by the completion of the latest 
phase of the Modern Examination and Risk Identification Tool (MERIT) 
project. In 2021, all NCUA examiners were trained to use the new 
MERIT system. MERIT was fully deployed to all NCUA examiners in the 
fall of 2021. In 2022, capital investments in Examination and 
Supervision Solution and Infrastructure Hosting (ESS&IH) will allow 
the NCUA to address rollout issues reported by the broader user base 
and continue to enhance MERIT and the ESS suite of applications 
based on user feedback.
    4. A proposed decrease of $1.7 million to the Share Insurance 
Fund (SIF) Administrative Expenses Budget, which results from the 
wind down of the NCUA Guaranteed Notes (NGN) program in 2022.

    Staffing levels for 2021 and 2022 reflect the agency's current 
staffing requirements and proposed staffing enhancements related to 
agency programs and initiatives.

Operating Budget

    The proposed 2022 Operating Budget is $326.0 million. Staffing 
levels are requested to increase by a net 48 FTEs compared to the 2021 
Board-approved budget.\1\
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    \1\ The published 2021 FTE level approved by the Board was 1,187 
for the Operating Budget. In August 2021, the NCUA Board approved 
seven additional FTEs. The revised 2022 Operating Budget proposes 48 
more FTEs, for a total of 1,242.
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    The 2022 Operating Budget increases approximately $11.4 million, or 
3.6 percent, compared to the 2021 Board-approved budget. The Operating 
Budget estimate for 2023 is $369.3 million and includes eight 
additional FTEs compared to the 2022 proposed level.
    The following chart presents the major categories of spending 
supported by the 2022 budget, while specific adjustments to the 2021 
Board-approved budget are discussed in further detail below:
[GRAPHIC] [TIFF OMITTED] TN24NO21.003

    Note: Minor rounding differences may occur in totals.
    Total Staffing. The Operating Budget funds 1,242 FTEs in 2022, 
while five additional FTEs are funded by the CLF, resulting in a net 
increase of 48 FTEs

[[Page 67240]]

compared to the 2021 levels approved by the Board. Additional staff 
have been added to several offices as discussed later in this document. 
Since 2018 and despite significant credit union asset growth, total 
NCUA staffing has remained within a relatively narrow range, as shown 
in the chart below.
[GRAPHIC] [TIFF OMITTED] TN24NO21.004

    Note: Total NCUA staffing includes five FTEs funded by the Central 
Liquidity Facility in 2022.
    Pay and Benefits. Pay and benefits increase by $16.7 million in 
2022, or 6.9 percent, for a budget of $257.5 million. The increase is 
mainly due to the proposed staffing of critical areas necessary to 
operate as an effective federal financial regulator capable of 
addressing emerging issues. The 2022 budget recommends 48 new FTEs, 
which includes 29 new regional FTEs to support expanded examination 
criteria for federal credit unions, three new regional FTEs to support 
expanded specialist examiners, five new FTEs for the Office of Consumer 
and Financial Protection (OCFP) positions to support fair lending and 
financial education and literacy programs, two new FTEs for the Office 
of Credit Union Resource Expansion (CURE) positions to support a new 
small credit union program initiative, and making permanent eight FTEs 
that are currently filled within the total NCUA staffing plan. These 
increases are offset by a reduction of one FTE in the Office of 
Examination and Insurance (E&I) and a reduction of five other FTEs by 
concluding the NGN program.
    The remaining increase in pay and benefits--nearly $2.3 million--is 
the result of the Office of Personnel Management (OPM) increasing the 
mandatory employer contribution for the Federal Employee Retirement 
System (FERS). Required FERS payments to OPM increase from 17.3 percent 
of covered employees' salaries to 18.4 percent, a change of 110 basis 
points. Nearly all NCUA employees are covered by FERS, which includes a 
defined benefit pension funded by both employee and employer 
contributions.
    Travel. The travel budget increases by $8.5 million in 2022, or 
69.7 percent, for a budget of $20.8 million. The large increase in 
travel does not represent a typical annual travel adjustment because 
the 2021 budget was unusually low due to restricted travel during the 
pandemic. The 2022 requested budget assumes that pandemic-related 
travel reductions will continue through the first quarter of 2022 and 
will resume to near pre-pandemic levels later in the year. 
Additionally, the NCUA plans to hold more internal and external meeting 
events in 2022 than in the pandemic-restricted environment of 2021. A 
leadership and training conference is planned for the NCUA senior 
leaders and managers to support professional development and employee 
engagement. The NCUA also plans to host three outreach roundtables to 
support stakeholder discussions about issues affecting the credit union 
system.
    The NCUA continues working to contain travel costs by expanding 
offsite examination work and using technology-driven training. In 
future budgets, the NCUA will determine how such adjustments to its 
examination approach will help mitigate growth in travel costs.
    Rent, Communications, and Utilities. The budget for rent, 
communications, and utilities decreases by $2.0 million in 2022, or 
28.2 percent, for a budget of $5.2 million. This funding pays for 
space-related costs, telecommunications services, data capacity 
contracts, and information technology network support. The decrease in 
2022 is primarily due to the agency's transition to the General 
Services Administration (GSA)-managed Enterprise Infrastructure 
Solutions (EIS). EIS is the federal government's contract for 
enterprise telecommunications and networking solutions. By 
transitioning to EIS, the NCUA's annual telecommunications costs will 
decrease by approximately $2.2 million, as well as benefit from the 
comprehensive solution EIS provides to address all aspects of federal 
agency IT telecommunications and infrastructure requirements.
    Administrative Expenses. Admin is trative expenses decrease by $0.2 
million in 2022, or 4.0 percent, for a budget of $5.8 million. The 
decrease to the administrative expenses budget category largely results 
from lower costs for the NCUA's share of the Federal Financial 
Institutions Examination Council (FFIEC) costs and lower supplies, 
materials, and subscription costs from the ongoing use of telework in 
2022.
    Contracted Services. Contracted services expenses decrease by $11.6 
million in 2022, or 23.9 percent, for a total budget of $36.7 million. 
However, $23.0 million of unspent budget amounts from prior years will 
be used to pay for 2022 Contracted Services expenses. Therefore, the 
total cost of all contracted services in 2022 is estimated to be $59.7 
million, an increase of $11.4 million compared to the 2021 budget.
    Contracted services funding pays for products and services acquired 
in the commercial marketplace and includes critical mission support 
services such as

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information technology hardware and software support, accounting and 
auditing services, and specialized subject matter expertise. The 
majority of funding in the contracted services category supports the 
NCUA's robust supervision framework and includes funding for tools used 
to identify and resolve risk concerns such as interest rate risk, 
credit risk, and industry concentration risk. Further, it addresses new 
and evolving operational risks such as cybersecurity threats.

Capital Budget

    The proposed 2022 Capital Budget is $13.1 million.
    The 2022 Capital Budget is $5.8 million less than the preliminary 
2022 funding level approved by the Board in December 2020, and $5.8 
million less than the 2021 Board-approved budget.
    The Capital Budget fully supports the NCUA's effort to modernize 
its IT infrastructure and applications. The 2022 budget for capital 
projects decreases largely because of the deployment of MERIT, the 
replacement for the legacy Automated Integrated Regulatory Examination 
System (AIRES). Capital funding for MERIT in 2022 will fund bug fixes 
and other modest system enhancements. Other IT investments funded in 
the 2022 Capital Budget include the planned deployment of new laptops 
on the Windows 11 platform, ongoing enhancements and upgrades to 
decades-old legacy systems, network servers, and systems to ensure the 
agency's cybersecurity posture complies with Executive Order 14208, and 
various hardware investments to refresh agency networks and ensure 
staff have the tools necessary to achieve the agency's mission. The 
2022 budget includes $3.3 million for IT software development projects 
that will continue replacement of the NCUA's decades-old and obsolete 
information technology systems, and $8.3 million in other IT 
investments for 2022. The NCUA's facilities require $1.5 million in 
capital investments.

Share Insurance Fund Administrative Expenses

    The proposed 2022 Share Insurance Fund Administrative budget is 
$6.2 million.
    The 2022 Share Insurance Fund Administrative Budget is $1.5 million 
less than the preliminary 2022 funding level approved by the Board in 
December 2020, and $1.7 million less than the 2021 Board-approved 
budget. The decrease in the Share Insurance Fund Administrative Budget 
is primarily driven by the completion of the NGN program, which is 
expected to substantially conclude in 2022. The remaining costs are 
attributed to the costs associated with tools and technology used by 
the Office of National Examinations and Supervision (ONES) to oversee 
credit union-run stress testing for the largest credit unions, travel 
for state examiners attending NCUA-sponsored training, audit support 
for the Share Insurance Fund's financial statements, and certain 
insurance-related expenses for Asset Management and Assistance Center 
(AMAC) operations.

2022 Operating Budget--Use of Surplus Funds

    Various public health restrictions instituted in response to the 
COVID-19 pandemic resulted in much lower-than-planned spending on 
employee travel in 2021, as the agency continued remote and offsite 
examinations and work. The NCUA currently estimates that the agency 
will end 2021 having under-spent the Board-approved budget by 
approximately $15.0 million, mostly due to a reduction in travel and 
other operating expenses. Approximately $14.0 million in surplus budget 
from 2020 is also projected to remain available at the end of the year.
    The NCUA's response to the coronavirus pandemic led to a number of 
unplanned and unbudgeted expenses, particularly for new requirements 
for cybersecurity, employee relocations, human capital support, and 
executive briefings and analysis support. In September 2021, the NCUA 
Board reallocated $4.0 million of the projected surplus for the 
following purposes:
     Cybersecurity Support: $906,780 was approved to implement 
cybersecurity requirements in 2021 for the NCUA's systems, services, 
and information holdings.
     Employee Relocations: $939,686 was approved for expected 
employee relocation costs in 2021.
     Human Capital Analytical Support: $550,000 was approved 
for analysis of the NCUA's compensation plans and for support analytic 
and consultative work about the NCUA's diversity, equity, and inclusion 
programs and practices.
     Executive Briefings and Analysis: $40,000 was approved for 
new executive briefings and analysis support.
     Employees' accrued leave payout: $1.6 million was approved 
for payout of employees' accrued leave in 2021.
    Of the remaining surplus balances, the 2022 budget proposes using 
$23.0 million to offset the costs of planned contract services 
spending, reducing the agency's overall budget by that amount.

Budget Trends

    As shown in the chart below, the relative size of the NCUA budget 
(dotted line) continues to decline when compared to balance sheets at 
federally insured credit unions (solid line).

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[GRAPHIC] [TIFF OMITTED] TN24NO21.005

    This trend illustrates the greater operating efficiencies the NCUA 
has attained in the last several years relative to the size of the 
credit union system. Additionally, the NCUA has improved its operating 
efficiencies more aggressively than other financial industry regulators 
(dotted line compared to dashed line).

Federal Compliance Cost

    As a federal agency, the NCUA is required to devote significant 
resources to numerous compliance activities required by federal law, 
regulations, or, in some cases, Executive Orders. These requirements 
dictate how many of the agency's activities are implemented and the 
associated costs. These compliance activities affect the level of 
resources needed in areas such as information technology acquisitions 
and management, human capital processes, financial management processes 
and reporting, privacy compliance, and physical and cyber security 
programs.
Financial Management
    Federal law, regulations, and government-wide guidance promulgated 
by the Office of Management and Budget (OMB), the Government 
Accountability Office (GAO), and the Department of the Treasury place 
numerous requirements on federal agencies, including the NCUA, 
regarding the management of public funds. Government-wide financial 
management compliance requirements include: Financial statement audits, 
improper payments, prompt payments, internal controls, and procurement 
audits, enterprise risk management, strategic planning, and public 
reporting of financial and other information.
Information Technology (IT)
    There are numerous laws, regulations, and required guidance 
concerning information technology used by the federal government. Many 
of the requirements cover IT security, such as the Federal Information 
Security Management Act. Other requirements cover records management, 
paperwork reduction, information technology acquisition, cybersecurity 
spending, and accessible technology and continuity.
Human Capital and Equal Opportunity
    Like other federal agencies, the NCUA is subject to an array of 
human capital-related laws, regulations, and other mandatory guidance 
issued by OPM, the Equal Employment Opportunity Commission, and OMB. 
Human capital compliance requirements include procedures related to 
hiring; management engagement with public unions and collective 
bargaining; employee discipline and removal procedures; required 
training for supervisors and employees; employee work-life and benefits 
programs; equal employment opportunity and required diversity and 
inclusion programs; and storage and retention of human resource 
records. The NCUA is also required by law to ``maintain comparability 
with other federal bank regulatory agencies'' when setting employee 
salaries.
Security
    The NCUA's security posture is driven by numerous legal and 
regulatory requirements covering the full range of security functions. 
The NCUA is required to comply with mandatory requirements for 
personnel security; physical security; emergency management and 
continuity; communications and information security; and insider threat 
activities. In addition to meeting specific legislative mandates, as a 
federal agency the NCUA is required to follow guidance from, but not 
limited to, the Office of the Director of National Intelligence, the 
Department of Defense, OPM, and the Federal Emergency Management 
Agency.
General Compliance Activities
    The NCUA also has other general compliance activities that cut 
across numerous offices. For example, the NCUA expends resources 
complying with the Privacy Act; Government in the Sunshine Act; 
multiple laws and regulations related to government ethics standards; 
and various reporting and other requirements set forth by the Federal 
Credit Union Act and other statutes.

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    Federal retirement costs are an example of mandatory payments to 
other federal agencies. As discussed earlier in this document, the cost 
of mandatory contributions to OPM for most NCUA employees' retirement 
system will increase from 17.3 to 18.4 percent of their salaries, based 
on the OPM Board of Actuaries of the Civil Service Retirement System 
recommendations. The budget impact of these additional retirement costs 
in 2022 is an increase of approximately $3.4 million over 2021.
BILLING CODE 7535-01-P
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II. Introduction and Strategic Context

History

    For more than 100 years, credit unions have provided financial 
services to their members in the United States. Credit unions are 
unique depository institutions created not for profit, but to serve 
their members as credit cooperatives.
    President Franklin Roosevelt signed the Federal Credit Union Act 
into law in 1934 during the Great Depression, enabling credit unions to 
be organized throughout the United States under charters approved by 
the federal government. The law's goal was to make credit available to 
Americans and promote thrift through a national system of nonprofit, 
cooperative credit unions. In the years since the passage of the 
Federal Credit Union Act, credit unions have evolved and are larger and 
more complex today than those first institutions. But, credit unions 
continue to provide needed financial services to millions of Americans.
    The NCUA is the independent federal agency established in 1970 by 
the U.S. Congress to regulate, charter, and supervise federal credit 
unions. With the backing of the full faith and credit of the United 
States, the NCUA operates and manages the National Credit Union Share 
Insurance Fund, insuring the deposits of the account holders in all 
federal credit unions and the vast majority of state-chartered credit 
unions. No credit union member has ever lost a penny of deposits 
insured by the Share Insurance Fund.
    As of June 2021, the NCUA is responsible for the regulation and 
supervision of 5,029 federally insured credit unions, which have 
approximately 127.2 million members and nearly $2 trillion in assets 
across all states and U.S. territories.\2\
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    \2\ Source: The NCUA quarterly call report data, Q2 2021.
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Authority

    Pursuant to the Federal Credit Union Act, authority for management 
of the NCUA is vested in the NCUA Board. It is the Board's 
responsibility to determine the resources necessary to carry out the 
NCUA's responsibilities under the Act.\3\ The Board is authorized to 
expend such funds and perform such other functions or acts as it deems 
necessary or appropriate in accordance with the rules, regulations, or 
policies it establishes.\4\
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    \3\ See 12 U.S.C. 1752a(a).
    \4\ See 12 U.S.C. 1766(i)(2).
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    Upon determination of the budgeted annual expenses for the agency's 
operations, the Board determines a fee schedule to assess federal 
credit unions. The Board gives consideration to the ability of federal 
credit unions to pay such a fee and the necessity of the expenses the 
NCUA will incur in carrying out its responsibilities in connection with 
federal credit unions.\5\ In December 2020, the Board approved a final 
rule with changes to its regulation and methodology for determining the 
fees due from federal credit unions.\6\
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    \5\ See 12 U.S.C. 1755(a)-(b).
    \6\ See https://www.govinfo.gov/content/pkg/FR-2020-12-31/pdf/2020-28490.pdf.
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    Pursuant to the law, fees collected are deposited in the agency's 
Operating Fund at the Treasury of the United States, and those fees are 
expended by the Board to defray the cost of carrying out the agency's 
operations, including

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the examination and supervision of federal credit unions.\7\ In 
accordance with its authority \8\ to use the Share Insurance Fund to 
carry out its insurance-related responsibilities, the Board approved an 
Overhead Transfer Rate methodology and authorized the Office of the 
Chief Financial Officer to transfer resources from the Share Insurance 
Fund to the Operating Fund to account for insurance-related expenses.
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    \7\ See 12 U.S.C. 1755(d).
    \8\ See 12 U.S.C. 1783(a).
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Mission, Goals, and Strategy

    The NCUA's 2022-2026 Strategic Plan is currently under development. 
The NCUA budget provides the resources necessary for the NCUA to 
address the agency's strategic priorities and related programs, to 
identify key challenges facing the credit union industry, and to 
leverage agency strengths to help credit unions address those 
challenges.

Organization, Major Agency Programs, and Workforce

    The NCUA operates its headquarters in Alexandria, Virginia, to 
administer and oversee its major programs and support functions; its 
AMAC in Austin, Texas, to liquidate credit unions and recover assets; 
and three regional offices to carry out the agency's supervision and 
examination program. Reporting to these regional offices, the NCUA has 
credit union examiners responsible for a portfolio of credit unions 
covering all 50 states, the District of Columbia, Guam, Puerto Rico, 
and the U.S. Virgin Islands.
    The following organizational chart \9\ reflects the agency's 
current structure, and the map shows each region's geographical 
alignment:
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    \9\ The Board Secretary is an organizational component of the 
NCUA Board.

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[GRAPHIC] [TIFF OMITTED] TN24NO21.009

BILLING CODE 7535-01-C
    The NCUA's regional offices carry out the agency's examination 
program. The NCUA uses an extended examination cycle for well-managed, 
low-risk federal credit unions with assets of less than $1 billion. 
Additionally, the NCUA's examiners perform streamlined examination 
procedures for financially and operationally sound credit unions with 
assets less than $50 million.
    In addition, the ONES examines corporate credit unions and large 
consumer credit unions with assets over $10 billion. Consumer credit 
unions fall within ONES' purview based on assets reported on the first 
quarter call report for the preceding year. In April 2020, the NCUA 
Board provided regulatory relief to credit unions meeting certain asset 
thresholds, which were effective through year-end 2020. This asset 
threshold relief was subsequently extended through year-end 2021. The 
relief allows credit unions to use assets reported on their March 31, 
2020, call report to determine applicability of certain regulations. As 
a result of this relief, no new large credit unions will enter ONES in 
2022. ONES will continue to examine and supervise 11 consumer credit 
unions with 23.5 million members, accounting for $369.5 billion in 
credit union assets. The next effective measurement period, which will 
use actual assets reported, is the March 31, 2022, call report. ONES 
anticipates at least nine credit unions will meet or exceed the $10 
billion threshold, and under existing regulations will fall within the 
supervisory purview of ONES beginning January 1, 2023. The staff draft 
budget proposes the resources necessary for examiners in the NCUA 
regions, in conjunction with ONES, to continue to supervise credit 
unions with reported assets between $10 billion and $15 billion in 
2022. Any formal change to the $10 billion threshold for a consumer 
credit union to be supervised by ONES must be approved by the NCUA 
Board.
    In 2022 and 2023, the agency's workforce will undertake tasks in 
all of the NCUA's major programs:
    Supervision: The supervision program contributes to the safety and 
soundness of the credit union system, thereby protecting the interests 
of all credit union stakeholders. The NCUA's supervision is driven by 
identifying and resolving risk in seven primary areas:

 Interest rate risk,
 liquidity risk,
 credit risk, including asset concentration risk,
 reputation risk,
 transaction risk,
 compliance risk, and,
     strategic risk, including operational risks such as 
cybersecurity and fraud.
    The NCUA supervises federally insured credit unions through 
examinations by enforcing regulations, taking administrative actions, 
and conserving or liquidating severely troubled institutions as needed 
to manage risk.
    Insurance: The NCUA manages the Share Insurance Fund, which 
provides insurance up to at least $250,000 per individual depositor for 
funds held at federally insured credit unions. The Share Insurance Fund 
is capitalized by credit unions and through retained earnings. The 
equity ratio is the overall capitalization of the insurance fund to 
protect against unexpected losses from the failure of credit unions. 
The Normal Operating Level (NOL) is the desired equity level for the 
Share Insurance Fund. Pursuant to the Federal Credit Union Act, the 
NCUA Board sets the NOL between 1.20 percent and 1.50 percent.
    Credit Union Development: Through chartering and field of 
membership services, training, and resource assistance, the NCUA 
supports development of small, minority, newly chartered, and low-
income designated credit unions. One source of assistance is the 
Community Development Revolving Loan Fund, which provides loans and 
technical assistance grants to credit unions serving low-income 
members. This support results in improved access to financial services, 
an opportunity for increased member savings, and improved employment 
opportunities in low-income communities.
    The NCUA charters new federal credit unions, as well as approves

[[Page 67248]]

modifications to existing federal charters and their fields of 
membership.
    Consumer Financial Protection: The NCUA protects consumers through 
supervision and enforcement of federal consumer financial protection 
laws, regulations, and requirements. The NCUA also develops financial 
literacy tools and information for consumers and promotes financial 
education programs for credit unions to assist members in making more 
informed financial decisions.
    NCUA's consumer financial protection mission goes hand-in-hand with 
the agency's safety and soundness mission. The agency strives to 
achieve a proper balance between the oversight needed to ensure 
consumers are protected and credit unions' ability to provide service 
to their member-owners. In addition, the NCUA's Consumer Assistance 
Center provides an avenue through which credit union members can report 
and resolve concerns they may have about the products and services they 
have received from their credit unions.
    When it comes to working with credit unions, the NCUA's goal is to 
facilitate their safe and sound operation while ensuring they fully 
comply with applicable laws, including consumer financial protection 
and fair lending laws. Toward that end, the agency emphasizes a 
compliance approach over an enforcement approach. We strive to detect 
and resolve problems and violations in credit unions through 
supervision and examination procedures before they become 
insurmountable.
    Asset Management: The NCUA conducts liquidations of failed credit 
unions and performs management and recovery of assets through the AMAC. 
This office manages and resolves assets acquired from liquidated credit 
unions. The AMAC provides specialized resources to the NCUA regional 
offices with reviews of large, complex loan portfolios and actual or 
potential bond claims. It also participates in the operational phases 
of conservatorships and records reconstruction. The AMAC seeks to 
minimize credit union failure costs to the Share Insurance Fund.
    ACCESS (Advancing Communities through Credit, Education, Stability, 
and Support): The ACCESS Initiative is intended to foster financial 
inclusion and address the financial disparities experienced by 
minority, underserved, and unbanked populations. Through ACCESS, the 
NCUA provides resources to assist credit unions with their outreach 
strategies. Resources include educational webinars and the 
identification of grants and other financial resources to support the 
development and implementation of financial products and services to 
assist members experiencing financial hardship. The NCUA will also 
evaluate ways to refresh and modernize regulations, policies, and 
programs in support of greater financial inclusion within the credit 
union system.
    Cross-Agency Collaboration: The NCUA also performs stakeholder 
outreach and is involved in numerous cross-agency initiatives. The NCUA 
conducts stakeholder outreach to clearly understand the needs of the 
credit union system. The NCUA seeks input from all of its stakeholders, 
including the Administration, Congress, State Supervisory Authorities, 
credit union members, credit unions, and their associations.
    The NCUA collaborates with the other financial regulatory agencies 
through several financial councils. Significant councils include the 
Financial Stability Oversight Council, the FFIEC, and the Financial and 
Banking Information Infrastructure Committee. These councils and their 
many associated taskforces and working groups contribute to the success 
of the NCUA's mission by providing the agency with access to critical 
financial and market information and opportunities to share information 
on critical issues and threats to the nation's financial 
infrastructure, among other benefits.

Budget Process--Strategy to Budget

    The NCUA's budget process starts with a review of the agency's 
strategic framework, including its goals and objectives. The strategic 
framework sets the agency's direction and guides resource requests, 
ensuring the agency's resources and workforce are allocated and aligned 
to agency priorities and initiatives.
    Each regional and central office director at the NCUA develops an 
initial budget request identifying the resources necessary for their 
office to support the NCUA's mission, goals, and objectives. These 
budgets are developed to ensure each office's requirements are 
individually justified and remain consistent with the agency's overall 
strategic framework.
    One of the primary inputs in the development process is a 
comprehensive workload analysis that estimates the amount of time 
necessary to conduct examinations and supervise federally insured 
credit unions in order to carry out the NCUA's dual mission as insurer 
and regulator. This analysis starts with a field-level review of every 
federally insured credit union to estimate the number of workload hours 
needed for the budget year. The workload estimates are then refined by 
regional managers and further reviewed by NCUA executive leadership for 
the annual budget proposal. The workload analysis accounts for the 
efforts of over 66 percent of the NCUA workforce and is the foundation 
for the budgets of the regional offices and ONES.
    In addition to the workload analysis, from which central office 
budget staff derive related personnel and travel cost estimates, each 
NCUA office submits estimates for fixed and recurring expenses, such as 
rental payments for leased property, operations and maintenance for 
owned facilities or equipment, supplies, telecommunications services, 
major capital investments, and other administrative and contracted 
services costs.
    Because information technology investments impact all offices 
within the agency, the NCUA has established an Information Technology 
Prioritization Council (ITPC). The ITPC meets several times each year 
to consider, analyze, and prioritize major information technology 
investments to ensure they are aligned with the NCUA's strategic 
framework. These focused reviews result in a mutually agreed-upon 
budget recommendation to support the NCUA's top short-term and long-
term information technology needs and investment priorities.
    Once compiled for the entire agency, all office budget submissions 
undergo thorough reviews by the responsible regional and central office 
directors, the Chief Financial Officer, and the NCUA's executive 
leadership. Through a series of presentations and briefings by the 
relevant office executives, the NCUA Executive Director formulates an 
agency-wide budget recommendation for consideration by the Board.
    The NCUA Board has an ongoing commitment to transparency around the 
agency's finances and budgeting processes. As such, the Office of the 
Chief Financial Officer has made draft budgets available for public 
comment via the agency's website and solicited public comments before 
presenting final budget recommendations for the Board's approval. 
Furthermore, Section 212 of the Economic Growth, Regulatory Relief, and 
Consumer Protection Act, Public Law 115-174, enacted May 24, 2018, 
requires that the NCUA ``make publicly available and publish in the 
Federal Register a draft of the detailed business-type budget.'' To 
fulfill this requirement, the Board delegated to the Executive Director 
the authority to publish the draft budget before submitting it for 
Board approval. This

[[Page 67249]]

draft budget will appear in the Federal Register for public comment.
    This 2022-2023 budget justification document includes comparisons 
to the Board approved 2021-2022 budget and includes a summary 
description of the major spending items in each budget category to 
provide transparency and promote understanding of the use of budgeted 
resources. Estimates are provided by major budget category, office, and 
cost element.
    The NCUA also posts supporting documentation for its budget request 
on the NCUA website to assist the public in understanding its budget 
development process. The budget request for 2022 represents the NCUA's 
projections of operating and capital costs for the year and is subject 
to approval by the Board.

Commitment to Financial Stewardship

    The NCUA funds its activities through operating fees levied on all 
federal credit unions and through reimbursements from the Share 
Insurance Fund, which is funded by both federal credit unions and 
federally insured state-chartered credit unions. The Overhead Transfer 
Rate (OTR) calculation determines the annual amount that the Share 
Insurance Fund reimburses the Operating Fund to pay for the NCUA's 
insurance-related activities. At the end of each calendar year, the 
NCUA's financial transactions are subject to audit in accordance with 
Generally Accepted Government Auditing Standards.\10\
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    \10\ See 12 U.S.C. 1783(b) and 1789(b).
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    The Board and the agency are committed to providing sound financial 
stewardship. In recent years, the NCUA Chief Financial Officer, with 
support and direction from the Executive Director and Board, has worked 
to improve the NCUA's financial management, financial reporting, and 
budget processes.
    The NCUA is the only Financial Institutions Reform, Recovery, and 
Enforcement Act (FIRREA) agency that publishes a detailed draft budget 
in the Federal Register and solicits public comments on it at a meeting 
with its Board and other agency leadership. The NCUA's 2022-2023 budget 
justification conforms with federal budgetary concepts, which increases 
transparency of the agency's planned financial activity. The NCUA first 
revised its financial presentations for such consistency in its 2018-
2019 budget.
    The NCUA works diligently to maintain strong internal controls for 
financial transactions, in accordance with sound financial management 
policies and practices. Based on the results of the NCUA's assessments 
conducted through the course of 2020, the agency provided an unmodified 
Statement of Assurance (signed February 16, 2021) that its management 
had established and maintained effective controls to achieve the 
objectives of the Federal Managers Financial Integrity Act (FMFIA) and 
OMB Circular A-123. Specifically, the NCUA supports the internal 
control objectives of reporting, operations, and compliance, as well as 
its integration with overarching risk management activities. Within the 
Office of the Chief Financial Officer, the Internal Controls Assessment 
Team (ICAT) continues to mature the agency-wide internal control 
program, strengthen the overall system of internal controls, promote 
the importance of identifying risk, and ensure the agency has 
identified appropriate responses to mitigate identified risks. The 
agency's internal controls are designed and operated in accordance with 
the requirements of the Government Accountability Office's Standards 
for Internal Controls in the Federal Government (Green Book).

Enterprise Risk Management

    The NCUA uses an Enterprise Risk Management (ERM) program to 
evaluate various factors arising from its operations and activities 
(both internal to the agency and external in the industry) that can 
impact the agency's performance relative to its mission, vision, and 
performance outcomes. Agency priority risks include both internal 
considerations, such as the agency's control framework, information 
security posture, and external factors such as credit union 
diversification risk. All of these risks can materially impact the 
agency's ability to achieve its mission.
    The NCUA's ERM Council provides oversight of the agency's 
enterprise risk management activities. Through the ERM program, 
established in 2015, the agency is identifying, analyzing, and managing 
risks that could affect the achievement of its strategic objectives.
    Overall, the NCUA's ERM program promotes effective awareness and 
management of risks, which, when combined with robust measurement and 
communication, are central to cost-effective decision-making and risk 
optimization within the agency. This holistic evaluation of how the 
agency pursues its goals and objectives is guided by the agency's 
appetite for risk and considers resource availability or limitations. 
In addition, the agency's risk appetite helps the NCUA's employees 
align risks with opportunities when making decisions and allocating 
resources to achieve the agency's strategic goals and objectives.
    The NCUA first adopted its enterprise risk appetite statement in 
the 2018-2022 Strategic Plan.\11\ The enterprise risk appetite 
statement is part of the NCUA's overall management approach.
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    \11\ https://www.ncua.gov/files/agenda-items/AG20180125Item3b.pdf.
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    The NCUA recognizes that risk is unavoidable and sometimes inherent 
in carrying out the agency's mandate. The NCUA is positioned to accept 
greater risks in some areas than in others; however, the risk appetite 
establishes boundaries for the agency and its programs. Collaboration 
across programs and functions is a fundamental part of ensuring the 
agency stays within its risk appetite boundaries, and the NCUA will 
identify, assess, prioritize, respond to, and monitor risks to an 
acceptable level.

III. Forecast and Enterprise Challenges

Economic Outlook

    The economic environment is a key determinant of credit union 
performance. Last year was one of the most challenging for the economy 
in U.S. history. The global pandemic and measures taken to combat the 
spread of COVID-19 plunged the U.S. economy into recession at the start 
of 2020. More than 22 million nonfarm payroll jobs were lost, and the 
unemployment rate increased to an 80-year high of 14.8 percent.
    The federal government responded quickly, establishing loan 
programs for affected businesses and providing financial relief to 
households in the form of stimulus payments and enhanced benefit 
payments to unemployed workers. Federal Reserve policymakers cut short-
term interest rates, increased the Federal Reserve's asset holdings, 
and established a number of lending programs to support the flow of 
credit to households, businesses, and state and local governments. 
Interest rates across the maturity spectrum fell to historically low 
levels.
    Economic activity picked up considerably in mid-2020, in response 
to these policy measures and the relaxation of restrictions on business 
and consumer activity put in place by state and local governments in 
the early days of the pandemic. The availability of a COVID-19 vaccine 
also provided significant support for economic activity. By the spring 
of 2021 the economy had returned to its pre-recession level of output. 
As of September 2021, just over 17 million

[[Page 67250]]

jobs had been added back to nonfarm payrolls, and the unemployment rate 
had declined to 4.8 percent.
    Credit union performance over the past year has been influenced by 
the pandemic and associated recession, but credit unions in the 
aggregate turned in a solid performance. Federally insured credit 
unions added 4.9 million members over the year, boosting credit union 
membership to 127.2 million in the second quarter of 2021. Credit union 
assets rose by 13.0 percent to $1.98 trillion. Total loans outstanding 
at federally insured credit unions increased 5.0 percent to $1.19 
trillion, and the system-wide delinquency rate declined 12 basis points 
to a modest 46 basis points. Credit union shares and deposits increased 
by 15.0 percent over the year to $1.71 trillion in the second quarter 
of 2021, reflecting the boost to income from federal emergency relief 
payments to individuals and the sharp, economy-wide increase in 
personal savings.
    The credit union system's net worth increased by 9.9 percent over 
the year to $201.1 billion in the second quarter of 2021. The jump in 
assets led to a drop in the credit union system's composite net worth 
ratio. However, at a composite net worth ratio of 10.17 percent, the 
credit union system remains very well-capitalized. The overall 
liquidity position of credit unions improved. Cash and short-term 
investments as a percentage of assets rose from 17.6 percent in the 
second quarter of 2020 to 18.5 percent in the second quarter of 2021, 
reflecting a 19 percent increase in cash and short-term investments.
    The near-term outlook for the U.S. economy and credit unions is 
generally favorable. A consensus of forecasters \12\ projects strong 
growth, falling unemployment, and low interest rates over the next 
year. Real Gross Domestic Product (GDP) is projected to grow 3.5 
percent over the four quarters of 2022 following a strong 5.5 percent 
increase during 2021. Robust growth will continue to spur job creation, 
driving the unemployment rate down to 4 percent by the fourth quarter 
of 2022.
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    \12\ Based on forecasts submitted in early October 2021 and 
published in Blue Chip Economic Indicators, October 11, 2021.
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    Inflation climbed sharply in 2021, reflecting the combination of 
strong demand as the economy rebounds and COVID-related supply-chain 
dislocations that have curtailed production and distribution and 
contributed to shortages of some products. Consumer price inflation was 
5.4 percent over the year ending in September 2021, up sharply from 
levels closer to 1.75 percent during the last period of economic 
expansion from mid-2009 through 2019. The consensus view is that recent 
high inflation readings are temporary, and price pressures will ease as 
supply bottlenecks are resolved. Forecasters expect price growth to 
retreat to around 2.25 percent by mid-2022 and hold there over the next 
several years. These forecasts are consistent with the Federal 
Reserve's stated objective for inflation to ``moderately exceed 2 
percent for some time'' so that inflation over time averages 2 percent.
    The most recent projections prepared by Federal Reserve 
policymakers, published in late September 2021, indicate inflation is 
expected to ease in 2022 and that the Federal Reserve is likely to hold 
off on raising the federal funds target rate until late next year.\13\ 
The median policymaker forecast shows the Federal Reserve's short-term 
policy rate rising slightly from its current range of 0 to 0.25 percent 
to 0.3 percent in the fourth quarter of 2022 and reaching 1.0 percent 
in late 2023. Analysts expect other short-term interest rates, which 
largely determine credit union interest payments, will remain close to 
their current historically low levels through the end of 2022 and move 
modestly higher in 2023. Longer-term rates, which largely determine the 
interest payments received by credit unions, are expected to edge 
higher as the economy strengthens.
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    \13\ Federal Open Market Committee, Summary of Economic 
Projections, September 22, 2021 (https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20210922.pdf).
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    Improving economic conditions should benefit credit unions. Strong 
growth and rising employment will boost household income, spending, and 
loan demand. Lower unemployment will bolster credit quality. Rising 
longer-term interest rates imply higher loan rates, and relatively low 
short-term interest rates will keep deposit rates in check.
    Despite the favorable near-term outlook, credit unions may still 
face a difficult environment in the upcoming budget year. The end of 
forbearance programs, moratoria on evictions and foreclosures, and 
other COVID-related support will lead to financial stress for many 
households, particularly those at the bottom of the income distribution 
that were hit hardest by the recession. Credit union delinquency rates 
could begin to rise. The low interest rate environment may also pose a 
challenge, especially for credit unions that rely primarily on 
investment income.
    There are also risks on the horizon that could hinder the economic 
recovery, affecting credit union performance. For example, the 
emergence of a new COVID-19 variant could exacerbate existing economic 
dislocations or trigger new dislocations, delaying the economy's return 
to more normal performance. If economic conditions weaken, the labor 
market recovery could stall. Under these circumstances, interest rates 
could remain low for an extended period of time. Alternatively, higher-
than-expected inflation for a prolonged period could spur Federal 
Reserve policymakers to remove monetary policy accommodation earlier 
and more aggressively than expected, causing short-term interest rates 
to rise sooner than anticipated. Tighter credit conditions typically 
constrain consumer and business borrowing and spending and cause 
economic growth to slow. If short-term interest rates rise more than 
long-term interest rates, the yield curve will flatten, putting 
downward pressure on credit union net interest margins. The NCUA, like 
credit unions, will need to remain flexible and prepare for a variety 
of economic outcomes that could affect credit union performance and 
agency resource requirements.

Other Risk Factors and Trends

    In addition to the risks associated with movements and trends in 
the general economy, the NCUA and credit unions will need to address 
increasing exposure to the risks associated with a variety of 
technological and structural changes. Increased concentration of loan 
portfolios, development of alternative loan and deposit products, 
technology-driven changes in the financial landscape, continued 
industry consolidation, and ongoing demographic changes will continue 
to shape the environment facing credit unions. The physical effects of 
climate change along with efforts to address climate change and 
transition to a low-carbon economy pose significant risks to the U.S. 
economy and the U.S. financial system.
    Cybersecurity: Credit unions' use of technology exposes the credit 
union system to emerging cyber-enabled risk and threats. The prevalence 
of ransomware, malware, social engineering, business email compromise 
attacks, and other forms of cyber intrusion create ongoing challenges 
at credit unions of all sizes and will require ongoing efforts for 
rapid detection, protection, response, and recovery. These trends are 
likely to continue, and even accelerate, in the foreseeable future.

[[Page 67251]]

    Lending trends: Increasing concentrations in select loan types and 
the introduction of new types of lending by credit unions emphasize the 
need for long-term risk diversification and effective risk management 
tools and practices, along with expertise to properly manage 
concentrations of risk.
    Financial Landscape and Technology: Financial products that mimic 
deposit and loan accounts, such as mobile payment systems, pre-paid 
shopping cards, and peer-to-peer lending platforms, pose a competitive 
challenge to credit unions and banks alike. The increasing popularity 
and adoption of these products and services could lead to a reduction 
in financial intermediation. Credit unions also face a range of 
challenges from financial technology (fintech) companies in the areas 
of lending and the provision of other services. For example, 
underwriting and lending may be automated at a cost below levels 
associated with more traditional financial institutions, but may not be 
subject to the same safeguards that credit unions and other traditional 
financial institutions face. The emergence and increasing importance of 
digital currencies may pose both risks and opportunities for credit 
unions. Technological changes outside the financial sector may also 
lead to changes in consumer behavior that indirectly affect credit 
unions. COVID-19 is accelerating many of these trends, resulting in a 
profound reshaping of consumer behaviors.
    Membership trends: While overall credit union membership continues 
to grow, more than half (55 percent) of federally insured credit unions 
had fewer members at the end of the second quarter of 2021 than a year 
earlier. Demographic changes are likely to lead to further declines in 
membership at some credit unions. All credit unions need to consider 
whether their product mix is consistent with their members' needs and 
demographic profile.
    Fraud: There is increased opportunity for fraud due to challenges 
caused by the COVID-19 pandemic. These frauds could create additional 
risks to credit unions or the Share Insurance Fund.
    Smaller credit unions' challenges and industry consolidation: Small 
credit unions face challenges to their long-term viability for a 
variety of reasons, including weak earnings, declining membership, high 
loan delinquencies, and elevated non-interest expenses. These 
challenges have contributed to the steady downward trend in the number 
of small, federally insured credit unions in operation. As of June 30, 
2021, there were 2,582 small federally insured credit unions holding 
less than $50 million in assets -29 percent less than five years 
earlier.\14\ Over the same period the number of federally insured 
credit unions with assets of at least $500 million rose 38 percent to 
680. These 680 credit unions account for 79 percent of credit union 
members and 83 percent of credit union assets. If current consolidation 
trends persist, there will be fewer credit unions in operation in 
future years, and those that remain will be considerably larger and 
more complex. Large credit unions tend to offer more complex products 
and services. Consolidation means the risks posed by individual 
institutions will become more significant to the Share Insurance Fund.
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    \14\ Note: The decrease in the number of small credit unions 
includes those for which asset growth resulted in exceeding the 
small credit union threshold at the end of the reported period.
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    Climate-related financial risks: On October 21, 2021, the Financial 
Stability Oversight Council (FSOC), of which NCUA is a member agency, 
released its Report on Climate-Related Financial Risk.\15\ The report 
finds that ``climate change is an emerging threat to the financial 
stability of the United States,'' and that the number--and cost--of 
extreme weather and climate-related disaster events is increasing. Each 
year, natural disasters like hurricanes, wildfires, droughts, and 
floods impose a substantial financial toll on households and businesses 
alike. Economic and financial disruptions, and uncertainties arising 
from both the physical effects of climate change and efforts to 
transition away from carbon-intensive energy sources and industrial 
processes, could affect credit unions across many dimensions. For 
instance, disruptions in economic activity caused by climate-related 
weather events (e.g., flooding or wildfires) may affect household 
income and the ability to stay current on household financial 
obligations in affected areas. The property damage associated with such 
events could affect the value of homes and any associated mortgages. 
The collateral value of motor vehicles may also be affected as 
consumers transition away from fossil fuels towards electric and hybrid 
automobiles. Finally, a credit union's field of membership is often 
tied to a specific industry, like oil refining or agriculture. The 
movement to renewable energy and changing weather patterns will likely 
impact many of these industries in the years ahead.
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    \15\ https://home.treasury.gov/system/files/261/FSOC-Climate-Report.pdf.
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    Credit unions will need to consider climate-related financial risks 
and how they could affect their membership and institutional 
performance. Measuring, monitoring, and mitigating climate-related 
financial risks presents a number of complex conceptual and practical 
challenges not only for credit unions but also for the NCUA. The NCUA 
Board will determine the appropriateness of adapting its risk 
monitoring framework to account for climate-related threats to 
financial stability, the credit union system, and the Share Insurance 
Fund. In 2021, the NCUA convened an internal Climate Financial Risk 
Working Group composed of experts from across the agency to develop in-
house expertise on climate-related financial risks and evaluate whether 
existing regulatory tools, policies, and examination procedures are 
sufficient for capturing and addressing these risks.

IV. Key Themes of the 2022-2023 Budget

Overview

    The staff draft 2022-2023 budget supports the agency's priorities 
and goals. The resources and initiatives proposed in the budget support 
the NCUA's mission to maintain a safe and sound credit union system.
    The draft budget includes funding for the NCUA to increase 
permanent staffing in critical areas necessary to operate as an 
effective federal financial regulator capable of addressing emerging 
issues and responding to changes in economic conditions that may impact 
the credit union system. The NCUA employees are the agency's most 
valuable resource for achieving its mission, and the agency is 
committed to a workplace and a workforce with integrity, 
accountability, transparency, inclusivity, and proficiency. The agency 
will continue investing in its workforce through training and 
development, ensuring employees have the skills they need to do their 
work effectively.
    The draft 2022-2023 budget proposes investments across a range of 
agency priorities, including:
     Additional examiner staff in the NCUA's three regions, 
which will enable the NCUA to address the growing complexity within the 
credit union system and increase annual examinations for certain credit 
unions;
     New program and staff resources to provide greater 
assistance to small credit unions;
     Additional staff dedicated to fair lending;
     Resources for the NCUA's ACCESS initiative, which is 
focused on improving financial inclusion;
     Expanded and ongoing efforts to ensure robust 
cybersecurity in the credit union system and at the agency;

[[Page 67252]]

     Increased offsite examination work and use of data 
analytics through the Virtual Examination project; and,
     Critical investments in new information technology systems 
and infrastructure, including enhancements to the agency's data 
reporting services and MERIT.
    The efficiency and effectiveness of the agency's workforce is 
dependent upon the resiliency of the NCUA's information technology 
systems and the availability of modern analytical tools. The NCUA is 
committed to implementing its new technology responsibly and delivering 
secure, reliable, and innovative solutions. The investments funded in 
the NCUA's Capital Budget will provide the tools and technology the 
workforce needs to achieve the NCUA mission.
    The COVID-19 pandemic also remains a consideration for the agency's 
priorities and budgets for 2022 and 2023. The effects of the pandemic 
impact the draft budget by reducing planned travel expenses due to the 
shift to more remote and offsite examination and other work and by 
increasing information technology expenses required to support this 
offsite and remote work.

Examination Outlook and Virtual Examinations

    Plans for the NCUA's 2022 examination program priorities are in 
place to incorporate updates related to regulatory considerations and 
revisions to some of the exam program components. The priorities for 
the 2022 examination program will include information security, payment 
systems, credit risk, the Allowance for Loan and Lease Losses account, 
Bank Secrecy Act (BSA) and Anti-Money Laundering (AML), internal 
controls, and consumer protections. The draft budget includes resources 
to increase the NCUA's cadre of highly-trained specialist examiners and 
to expand requirements for annual examinations for certain credit 
unions that had previously been on an extended examination cycle.
    Cyberattacks pose significant risks to the financial system. 
Because of continued attacks on the nation's financial sector and the 
broader national critical infrastructure, the NCUA places credit union 
cybersecurity as a top supervisory priority and enterprise risk 
objective.
    To meet these challenges, the NCUA engages in interagency 
cybersecurity preparedness as members of the Federal Financial 
Institutions Examination Council and the Financial and Banking 
Information Infrastructure Committee. The NCUA monitors cyber threats 
identified by federal and non-federal sources and shares relevant 
information about them with the credit union industry and financial 
sector partners.
    In 2021 the NCUA piloted a new information security examination 
program. The NCUA established a working group of regional and 
headquarters staff to review and incorporate changes into the program 
to be scalable to the institution's complexity and size. The NCUA plans 
to provide examiner training and testing of the program for the first 
six months of 2022 and deploy the improved program no later than the 
end of the third quarter 2022.
    In November 2017, the NCUA Board approved funding to explore 
methods to conduct more examination work offsite--referred to as the 
Virtual Examination project. Staff is identifying new and emerging data 
sources and methods to access the data, exploring advancements in 
analytical techniques, and considering how other technologies can be 
harnessed to automate or streamline various aspects of the examination 
process. Since March 2020, the NCUA staff has conducted the majority of 
its examination work while fully offsite, with only a few exceptions 
for the most problematic and challenging cases. The Virtual Examination 
project team plans to build upon this work by integrating lessons 
learned during the pandemic.
    Effective virtual examinations will lead to greater use of 
standardized interaction protocols, advanced analytical capabilities, 
and better-informed subject matter experts. This should result in more 
consistent and accurate supervisory determinations, provide greater 
clarity and consistency with respect to how the agency conducts 
supervisory oversight, and reduce coordination challenges between 
agency and credit union staff. A full transformation involves iterative 
and incremental steps over several years.

Support for Small Credit Unions

    Small credit unions with less than $100 million in assets are in a 
unique position to improve financial inclusion by offering their 
communities access to credit and other services. The draft budget 
proposes new staff and resources for the NCUA to improve the support 
provided to small credit unions. Such support includes efforts to 
better tailor regulations and supervision to the needs of small credit 
unions, staff training about the unique needs of small credit unions 
and their role serving underserved communities, expanding opportunities 
for small credit unions to receive support through NCUA grants, 
training, and other initiatives, and fostering partnerships with 
external organizations that can support small credit unions.

Fair Lending

    The NCUA uses onsite examinations, supervision contacts, and data 
analysis to ensure credit unions comply with fair lending laws and 
regulations. The draft budget proposes staff resources to enhance the 
NCUA's fair lending programs and increase fair lending examinations by 
50 percent and fair lending supervision contacts by 25 percent. 
Consumer financial protection and fair and equitable access to credit 
is vital to members of credit unions. These additional resources will 
enable the NCUA to strengthen its consumer financial protection 
program.

ACCESS and Financial Inclusion

    At its heart, financial inclusion means expanding access to safe 
and affordable financial services for unbanked and underserved people 
and communities. The financial services industry--of which credit 
unions are an important part--plays a key role in helping families 
achieve financial freedom by building generational wealth, helping 
entrepreneurs to get their small businesses off the ground, and helping 
to create jobs and strengthen communities. The NCUA has a role to play 
in making sure that credit unions can support overlooked or underserved 
areas.
    The NCUA's ACCESS initiative--Advancing Communities through Credit, 
Education, Stability, and Support--began by reviewing NCUA regulations, 
processes, and procedures to expand opportunities for greater access to 
savings, credit, and other financial services provided by credit 
unions.\16\ The five initial ACCESS focus areas are:
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    \16\ https://www.ncua.gov/access.
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     Chartering new credit unions;
     Field of membership;
     Low-income designation;
     Minority depository institution (MDI) preservation; and
     Consumer engagement and outreach.
    For 2022, the NCUA's ACCESS initiative will build on the work done 
in 2021 and begin to actively engage credit union industry leaders and 
stakeholders to identify additional ways to help new, small, low-income 
designated and MDI credit unions to grow and prosper. The ACCESS 
initiative will also be focused on ways credit unions can help close 
the wealth gap, better address the financial needs of communities of 
color,

[[Page 67253]]

and better appeal to the unserved and underserved.

NCUA Cybersecurity

    The NCUA's approach to agency cybersecurity is founded on the 
National Institute of Standards and Technology's (NIST) Cybersecurity 
Framework (CSF), which guides and constrains how network boundaries, 
mobile and fixed end points (e.g., an iPhone or computer), and data are 
provisioned, managed and protected. The CSF requirements are reinforced 
by Executive Order 14208: Improving the Nation's Cybersecurity. The 
draft budget bolsters the NCUA's to-date cybersecurity efforts and 
enables the agency to align its efforts with the requirements of the 
Executive Order. To effectively manage cybersecurity risk to systems, 
assets, data, and mission capabilities, and to prioritize efforts 
consistent with the NCUA's risk management strategy and business needs, 
the budget invests in resources and technologies to enhance several of 
the NCUA's CSF functional areas.
    The draft budget will strengthen the NCUA's ``Identify'' functional 
area by making investments in asset management, governance, and risk 
assessment. The draft budget will strengthen the NCUA's ``Protect'' 
functional area by making investments in enterprise protection 
capabilities, automated patch management, and enterprise comply-to-
connect capabilities, and by incorporating cloud-native capabilities 
into defensive network operations. These investments will help the NCUA 
further develop and implement appropriate safeguards for critical 
information technology infrastructure services and strengthen NCUA 
capabilities to limit or contain the impact of potential cybersecurity 
events. The draft budget will strengthen the NCUA's ``Detect'' 
functional area by making investments in cybersecurity situational 
awareness through ``big data'' analytics. Investments in both human and 
technology resources will help the NCUA enhance existing processes and 
ability to identify cybersecurity events.

Regulatory Improvements

    The NCUA has undertaken a series of regulatory improvements in 
recent years and will continue to update and improve regulations to 
maintain a modern and effective regulatory framework. The NCUA website 
includes additional detailed information about all proposed and final 
rules for the past several years at: https://www.ncua.gov/regulation-supervision/rules-regulations/proposed-pending-recently-final-regulations/.
    The NCUA's Annual Report includes the results of the regulatory 
reviews the agency completes on a yearly basis. The NCUA's current 
performance target for regulatory review is to review one-third of the 
agency's regulations on an annual basis.

V. Operating Budget

Overview

    The NCUA Operating Budget is the annual plan for resources required 
for the agency to conduct activities prescribed by the Federal Credit 
Union Act of 1934. These activities include: (1) Chartering new federal 
credit unions; (2) approving field of membership applications of 
federal credit unions; (3) promulgating regulations and providing 
guidance; (4) performing regulatory compliance and safety and soundness 
examinations; (5) implementing and administering enforcement actions, 
such as prohibition orders, orders to cease and desist, orders of 
conservatorship and orders of liquidation; and (6) administering the 
National Credit Union Share Insurance Fund.

Staffing

    The staffing levels proposed for 2022 reflect the resource 
requirements that support the NCUA's continued efforts to improve the 
examination process and enhance the efficiency and effectiveness of the 
supervisory process. The 2022-2023 budget includes funding for the NCUA 
to increase permanent staffing in critical areas necessary to operate 
as an effective federal financial regulator capable of addressing 
emerging issues.
    The 2022 budget supports a total agency staffing level of 1,247 
full-time equivalents.\17\ This is an increase of 48 FTEs compared to 
the agency's revised 2021 staffing level of 1,199. The 2021 budget, 
approved by the NCUA Board on December 18, 2020, funded a staffing 
level of 1,192 FTEs. On September 23, 2021, the NCUA Board approved 
seven additional FTEs. The additional Board-approved FTEs for 2021 
included: Three positions for the Office of Ethics Counsel (Ethics 
Attorney, Ethics Specialist, and Staff Assistant), two positions for 
the Chief Information Officer (Cybersecurity Operations and Service 
Delivery Manager), one new Cybersecurity Advisory and Coordinator 
position in the Office of the Executive Director, and one new Special 
Assistant position in the Office of the Board Secretary.
---------------------------------------------------------------------------

    \17\ 1,242 FTEs are funded by the Operating Budget and five FTEs 
are funded by the Central Liquidity Facility.
---------------------------------------------------------------------------

    The proposed changes for the 2022 staffing level include:
     Increasing by 29 FTEs the NCUA's regional staff of 
examiners and supervisory examiners to support more frequent 
examinations for certain federal credit unions;
     Increasing by three FTEs the NCUA's regional staff to 
expand the agency's cadre of specialist examiners;
     Increasing by five FTEs the Office of Consumer and 
Financial Protection to increase the number of fair lending 
examinations and reviews and to strengthen the agency's efforts to 
promote financial inclusion and outreach;
     Increasing by two FTEs the Office of Credit Union 
Resources and Expansion to initiate a new program that supports small 
credit unions;
     Adding seven new FTEs in various other NCUA headquarters 
offices;
     Making permanent eight FTEs that are currently filled 
within the total NCUA staffing plan;
     Reducing by five FTEs the Office of the Chief Financial 
Officer and the Office of Examination and Insurance (E&I) by concluding 
the NGN program; and
     Reducing by one FTE the Office of E&I by reorganizing 
responsibilities within the office.
    The new 2022 FTEs are described in greater detail below, while the 
chart illustrates the NCUA's staffing levels in recent years.\18\
---------------------------------------------------------------------------

    \18\ Full-time equivalent employment is the total number of 
regular straight-time hours (i.e., not including comp time or 
holiday hours) worked by employees, divided by the number of 
compensable hours applicable to the fiscal year, as defined by OMB 
Circular No. A-11. The NCUA uses the number of full-time equivalent 
employees projected in the budget to build its estimated pay and 
benefits calculations. The actual number of persons employed will 
vary at any point in time, based on vacancies, use of part-time 
employees, etc.

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[[Page 67254]]

[GRAPHIC] [TIFF OMITTED] TN24NO21.010

Request for New Staff in 2022: +46 FTEs

    The staff draft budget includes funding for 46 new FTEs in 2022, as 
detailed below:

Regional Credit Union Examiners +29 FTEs

    The COVID-19 pandemic has resulted in challenging economic 
conditions that may take years to resolve fully. While federal policy 
and spending have managed to blunt the most severe economic effects of 
the pandemic, future economic conditions may change rapidly, 
particularly in communities of modest means that are served by credit 
unions. Therefore, it is prudent to expand the criteria for credit 
unions that meet the requirements for an annual examination to include 
(1) credit unions with assets between $500 million and $1 billion that 
have otherwise previously qualified for an extended examination cycle 
based on the current Exam Flexibility Initiative criteria, and (2) 
credit unions with assets more than $250 million and evaluated as 
facing a higher risk of business or economic challenges. This expansion 
of the annual examination requirement necessitates an increase in the 
examination workforce by 29 FTEs.

Regional Specialist Examiners +3 FTEs

    The NCUA last evaluated its needs for specialist examiners in 2018. 
Since that time the number of credit unions with more than $100 million 
in assets has grown and the complexity of and risks to financial 
services' information and payments systems has also increased. In 
response to these dynamics within the credit union system, the NCUA 
conducted an analysis of its needs for specialist examiners. Three 
disciplines in particular are in need of additional specialists: 
Regional electronic payments specialists (REPSs), regional information 
systems officers (RISOs), and regional lending specialists (RLSs). The 
NCUA expects to establish 11 new REPSs, 8 new RISOs, and 4 new RLSs in 
its three regions. Specialist Examiners contribute to conducting 
examination and supervision work, but at a lower level than examiners. 
Therefore, the repurposing of existing authorized positions 
necessitates a net increase of three examiner FTEs to account for the 
reduction in productive time.

Small Credit Union Program Officers +2 FTEs

    The NCUA, as administrator of the Federal Credit Union Act, assists 
credit unions with their mission and purpose of promoting thrift among 
their members and creating a source of credit for provident or 
productive purposes. Small credit unions with less than $100 million in 
assets are in a unique position to improve financial inclusion by 
offering credit and other services to their communities. These two new 
positions in CURE will be responsible for identifying and developing 
additional programs to address the needs of small credit unions. Such 
support could include efforts to recognize the differences between 
small and large credit unions in regulations, policies, and guidance; 
developing training for examination staff about the unique needs of 
small credit unions and their role serving underserved communities; 
promoting opportunities for small credit unions to receive support 
through NCUA grants, training, and other initiatives; and developing 
partnerships with external organizations that can support small credit 
unions.

Fair Lending Analysts +3 FTEs

    Three new positions within OCFP will enhance the NCUA's fair 
lending function by increasing fair lending examinations by 50 percent 
(from 30 to 45 annually) and fair lending supervision contacts by 25 
percent (from 40 to 50 annually). The additional staff will focus on 
serving as Examiner-In-Charge for and performing fair lending 
examinations and supervision

[[Page 67255]]

contacts, and recommending corrective action when required. These 
analysts will also serve as technical advisors and function as a 
regional resource for fair lending and other consumer financial 
protection laws and regulations affecting credit unions. Additionally, 
the analysts will participate on FFIEC subcommittees as well as other 
interagency and internal working groups.

Fair Lending Supervisor +1 FTE

    The expansion of NCUA's fair lending work will require a full-time 
supervisor to oversee the added examination workload and ensure a more 
equitably balanced supervisor-to-staff ratio within OCFP. Adding an 
additional supervisor to oversee workload focused primarily on 
conducting examinations will also help foster a more independent 
quality control process. The new supervisor will provide leadership and 
direction to staff responsible for developing, monitoring, evaluating, 
and maintaining NCUA's fair lending program.

Financial Inclusion and Outreach Analyst +1 FTE

    This new position within OCFP will be responsible for developing, 
coordinating, and implementing the NCUA's strategic stakeholder 
relationships related to community affairs, economic inclusion, and 
financial education and literacy activities. The new analyst's 
portfolio will include consumer financial inclusion/literacy issues 
that will require stakeholder engagement and coordination (e.g., Elder 
Financial Abuse, Cybersecurity, FinTech and Financial Literacy, 
Financial Counseling/Education, Young Savings and Financial Education 
Programs, Underserved Outreach/Economic Inclusion). This analyst will 
work with NCUA's other financial literacy staff to bring together the 
appropriate parties, resources, and information in order to advance 
NCUA's financial literacy and consumer financial protection policy 
priorities. Such efforts will include hosting annual consumer financial 
protection forums, hosting regional consumer financial protection 
summits, holding meetings with external groups and regional and central 
office stakeholders, creating memorandums of understanding (MOUs) or 
formal collaborations, hosting webinars or training workshops, and 
creating industry or supervisory guidance to support the financial 
education and inclusion needs of credit unions, their member-owners, 
and the communities served.

Associate Director, Office of Examination and Insurance +1 FTE

    This new position within E&I will provide executive leadership and 
oversight for development of the agency's examination and supervision 
programs. Additionally, this position will oversee policy and 
rulemaking functions that help ensure the safety and soundness of the 
credit union system and help manage expanded workload while ensuring 
timely delivery of agency initiatives.

System Specialist, Office of Examination and Insurance +1 FTE

    This new position within E&I will manage the continuing operations 
and maintenance of the new MERIT system as well as other software 
updates planned for ongoing maintenance in 2022. Systems-related 
workload has generally grown within the E&I Systems Division because of 
tasks required to comply with increasing levels of security and 
administrative requirements.

Bank Secrecy Officer, Office of Examination and Insurance +1 FTE

    This new position within E&I will support the growing requirements 
related to Bank Secrecy Act (BSA) policy, guidance, and interagency and 
law enforcement engagement. BSA has received increased focus and reform 
and efficiency improvements, and interagency initiatives have increased 
materially over the last two years. The workload is expected to 
increase as fintech, digital currency, distributed payments, and the 
broad range of new requirements associated with the Anti-Money 
Laundering Act and the Corporate Transparency Act of 2020 are developed 
and implemented. The NCUA, like the other financial service agencies, 
has an active role to play in virtually all of the new requirements, 
including staffing and supporting two new subcommittees of the BSA 
Advisory Group focusing on privacy, security, and innovation.

Division Director, Human Capital Systems and Planning +1 FTE

    This new position within the Office of Human Resources will manage 
human capital, strategic workforce and succession planning, data 
analytics, workforce management prioritization, human capital systems 
administration, reporting, and compensation analysis. This role is 
essential for the day-to-day management of the Division's functions and 
the continuing human capital data analysis and planning needed to 
recruit, hire, and retain a high-performing workforce.

Senior Website Administrator, Office of External Affairs and 
Communications +1 FTE

    This new position within the Office of External Affairs and 
Communications (OEAC) will supplement the existing website 
Administrator. Currently, the agency has one federal employee 
overseeing and managing the NCUA website and Section 508 compliance 
requirements, supported by contract staff. Demand for website support 
and Section 508 compliance continues to increase; new compliance 
requests are 25 percent higher in 2021 than 2019. The growing workload 
also includes compliance testing as part of the development of new 
systems under the Enterprise Solution Modernization program and as part 
of the new emphasis for NCUA online/virtual training.

Speechwriter, Office of External Affairs and Communications +1 FTE

    This new position within OEAC will manage the increasing demand for 
external communications. The new speechwriter position would work side-
by-side with OEAC's current Writer/Editor. Prior to 2019, the number of 
speaking events was limited to a few dozen per year. However, starting 
in 2019, the tempo of Board and Chairman remarks increased--setting a 
new standard for communications.

Asset Management and Assistance Center (AMAC) President +1 FTE

    The NCUA requires a dedicated AMAC President position to provide 
leadership and serve as the key advisor to the NCUA Board on AMAC 
matters, including liquidation payouts, managing assets acquired from 
liquidations, and managing recoveries for the National Credit Union 
Share Insurance Fund (NCUSIF). This position is necessary to separate 
oversight of AMAC's activities from those of the Southern Region and 
provide dedicated leadership over AMAC operations. This role will also 
oversee AMAC's responsibility for providing assistance and advice 
pertaining to conservatorships, real estate and consumer loans, 
appraisals, bond claim analysis, and reconstructing accounting records.

Additional Adjustments to Authorized Staffing: +2 FTEs (NET)

    In addition to the new positions proposed for 2022, the budget also 
includes resources to make permanent the following adjustments to the 
agency's staffing and within the overall 2021 Board-authorized staffing 
levels:

[[Page 67256]]

     Office of National Examinations and Supervision: Five FTEs 
to support the supervision of large consumer credit unions: One 
national supervision technician, one national lending specialist, one 
national supervision analyst, one financial data analyst, and one 
national information systems officer.
     Office of Business Innovation: One special assistant to 
support the growing systems requirements, analytics development 
expansion, and implementation and execution of a business intelligence 
capability plan.
     Office of General Counsel: One labor relations attorney to 
manage growing workload requirements.
     Office of the Executive Director: One ACCESS coordinator 
position will serve as a Program Officer and technical authority for 
NCUA's Advancing Communities through Credit, Education, Stability and 
Support programs. This position will be responsible for development and 
implementation of policies, strategies, and programs to support the 
goals and objectives of ACCESS, and will serve as a point of contact 
between the public and NCUA Regions and Offices to address questions or 
resolve issues regarding financial equity and inclusion.
     NCUA Guaranteed Notes Program: Reduction of five positions 
that supported the NGN program, which will be concluded in 2022.
     Office of Examinations and Insurance: Reduction of one 
supervisory position by reorganizing responsibilities within the 
office.
    Like any government agency, the NCUA manages its changing workload 
within its overall authorized budgetary and staff resource levels. The 
NCUA Board has delegated to the Executive Director the authority to 
adjust staffing within total allocated resources to best respond to 
changing agency priorities and trends within the credit union system. 
The Executive Director must maintain total NCUA staffing at or below 
the resource levels approved within the budget, and promptly inform the 
Board of any significant changes to the agency's staffing allocations 
within the approved resource totals.

Special Surge Workforce

    In 2021, the NCUA Board provided temporary COVID-19 hiring 
authority to respond to uncertainties in the credit union system. This 
authority continues through 2022 and provides the NCUA the ability to 
hire and retain for a term appointment, without a reduction to their 
federal annuity, up to 30 individuals who have retired from federal 
service into a position classified in the Credit Union Examiner 0580 
occupational series. This authority allows the NCUA to add staff who 
are already trained and have experience examining depository financial 
institutions so as to be better prepared to respond to any elevated 
levels of problem institutions that occur in 2022. These positions are 
two-year, not-to-exceed appointments, meaning that any employees hired 
under this program can serve a maximum of two years, and the 
appointments can be ended prior to the end of the two-year term if they 
are no longer needed. These positions are funded in 2022 by using 
unspent 2020 Operating Budget funds not otherwise made available to 
offset the costs of 2022 agency operations, which is anticipated to be 
sufficient to fund the positions in 2022.

Budget Category Descriptions and Major Changes

    There are five major expenditure categories in the NCUA budget. 
This section explains how these expenditures support the NCUA's 
operations and presents a transparent overview of the Operating Budget.
[GRAPHIC] [TIFF OMITTED] TN24NO21.011


[[Page 67257]]


[GRAPHIC] [TIFF OMITTED] TN24NO21.012

    Actual expenses for the Operating Fund are reported monthly in the 
Operating Fund Financial Highlights posted on the NCUA website. Share 
Insurance Fund Financial Reports and Statements, which are also posted 
to the NCUA website, detail reimbursements made to the Operating Fund 
for NCUA expenses.

Salaries and Benefits

    The budget includes $257.5 million for employee salaries and 
benefits in 2022. This change is a $16.7 million, or 6.9 percent, 
increase from the 2021 Board-approved budget. Salaries and benefits 
costs make up 79 percent of the annual NCUA budget. There are two 
primary drivers of increased costs in 2022 for the Salaries and 
Benefits category:
    Merit and locality pay increases for the NCUA's employees are paid 
in accordance with the agency's current Collective Bargaining Agreement 
(CBA) and its merit-based pay system. Salaries are estimated to 
increase 3.6 percent in aggregate compared to 2021.
    Contributions for employee retirement to the Federal Employee 
Retirement System, which are set by the Office of Personnel Management 
and cannot be negotiated or changed by the NCUA. Driven largely by the 
mandatory FERS rate adjustment, total NCUA benefits costs increase 8.4 
percent in 2022 compared to 2021.
    In 2022, the NCUA's compensation levels will continue to ``maintain 
comparability with other federal bank regulatory agencies,'' as 
required by the Federal Credit Union Act.\19\ The Salaries and Benefits 
category of the budget includes all employee pay raises for 2022, such 
as merit and locality increases, and those for promotions, 
reassignments, and other changes, as described below.
---------------------------------------------------------------------------

    \19\ The Federal Credit Union Act states that, ``In setting and 
adjusting the total amount of compensation and benefits for 
employees of the Board, the Board shall seek to maintain 
comparability with other federal bank regulatory agencies.'' See 12 
U.S.C. 1766(j)(2).
---------------------------------------------------------------------------

    Consistent with other federal pay systems, the NCUA's compensation 
includes base pay and locality pay components. The NCUA staff will be 
eligible to receive an average merit-based increase of 3.0 percent, and 
an additional locality adjustment ranging from 1.0 percent to 3.0 
percent, depending on the geographic location.
    The first-year cost of the 48 new positions added in 2022 is 
estimated to be $4.0 million. Specific increases to individual offices' 
salaries and benefits budgets will vary based on current pay levels, 
position changes, and promotions.
    Personnel compensation at the NCUA varies among every office and 
region depending on work experience, skills, years of service, 
supervisory or non-supervisory responsibilities, and geographic 
locations. In general, more than 85 percent of the NCUA workforce has 
earned a bachelor's degree or higher, compared to approximately 35 
percent of the private-sector workforce. This high level of educational 
achievement ensures the NCUA workforce is able to fulfill its mission 
effectively and efficiently, and attracting a well-qualified workforce 
requires the agency to pay employees competitive salaries.
    Individual employee compensation varies based on the location where 
the employee is stationed. The federal government sets locality pay 
standards, which are managed by the President's Pay Agent--a council 
established to make recommendations on federal pay. The council uses 
data from the Occupational Employment Statistics program, collected by 
the Bureau of Labor Statistics, to compare salaries in over 30 
metropolitan areas and establishes recommendations for equitable 
adjustments to employee salaries to account for differences between 
localities.
    The Office of Personnel Management's economic assumptions for 
actuarial valuation of the FERS have increased significantly for 2022. 
All federal agencies are expected to contribute 18.4 percent of FERS 
employees' salaries to the OPM retirement system, an increase of 110 
basis points compared to the 2021 level of 17.3 percent. This mandatary 
contribution is prescribed in the OPM Benefits Administration Letter, 
dated May 2021. The estimated impact on the NCUA budget is an increase 
of approximately $3.4 million in mandatory payments to OPM, or 
approximately 21 percent of the salary and benefits growth compared to 
2021 levels.
    The average health insurance costs for the Federal Employees Health 
Benefits (FEHBP) program for 2022 are consistent with historical actual 
expenses and the OPM estimate that the government share of FEHBP 
premiums will increase 1.9 percent in 2022. The employee salary and 
benefits category also includes costs associated with other mandatory 
employer contributions such as Social Security, Medicare, 
transportation subsidies, unemployment, and workers' compensation.
    In past years, the NCUA adjusted its budget downward by an expected 
vacancy rate for positions that are not filled during the year because 
of a time lag between employee separations and hiring new staff. Since 
2018, the NCUA has lowered its vacancy rate and continues to closely 
monitor the hiring and attrition trends within its

[[Page 67258]]

workforce. In anticipation of the need for a full complement of staff 
in 2022, and because of ongoing efforts to accelerate the agency's 
hiring cycle time, the proposed 2022 budget does not include a vacancy 
adjustment.
    The 2023 budget request for salaries and benefits is estimated at 
$273.6 million, a $16.1 million increase from the 2022 level. Included 
within this total is the full-year cost impact of new positions 
proposed for 2022 (approximately $4.0 million), $564,000 for eight 
additional positions expected for 2023, merit and locality pay 
increases consistent with the CBA and promotions (approximately $8.2 
million), and associated increases in benefits for all employees 
(approximately $3.4 million). The 2023 budget also includes an 
inflationary adjustment given the potential for a new labor contract 
with the NCUA employees' union that is currently under negotiation.

Travel

    The 2022 budget includes $20.8 million for travel. This change is a 
69.7 percent increase to the 2021 Board-approved budget.
    There are three primary reasons for the significant travel budget 
increase compared to the 2021 levels. First, the 2021 travel budget of 
$12.3 million was unusually low compared to historic levels because of 
pandemic-related travel restrictions. Therefore, comparisons between 
2021 and 2022 travel levels are not representative of typical annual 
travel adjustments. Second, the NCUA expects that although pandemic-
related travel reductions will likely continue through the first 
quarter of 2022, travel will approach pre-pandemic levels for the 
remainder of the upcoming year. And third, the NCUA plans an expanded 
schedule of internal and external meeting events in 2022. A leadership 
and training conference is planned for senior leaders and managers to 
support professional development and employee engagement. The NCUA also 
expects to host three outreach roundtables to support stakeholder 
discussions on credit union industry issues.
    The travel cost category includes expenses for employees' airfare, 
lodging, meals, auto rentals, reimbursements for privately owned 
vehicle usage, and other travel-related expenses. These are necessary 
expenses for examiners' onsite work in credit unions. Close to two-
thirds of the NCUA's workforce is comprised of field staff who spend a 
significant part of their year traveling to conduct the examination and 
supervision program. During the COVID-19 pandemic, the agency and its 
employees successfully transitioned to an offsite examination posture, 
developing new procedures and processes to continue examination and 
supervisory work. In 2022, the NCUA will continue evaluating how it can 
conduct portions of its examinations remotely and offsite, which should 
help constrain the growth of future travel budgets.
    The NCUA staff also travel for routine and specialized training. In 
2021, the NCUA had planned to conduct a series of training events to 
support the nationwide rollout of MERIT; however, these training events 
were changed to virtual events in 2021 due to pandemic-related 
restrictions. In 2022, the NCUA expects the majority of its staff to 
return to in-person training starting in the second quarter of the 
year. As appropriate, agency personnel will continue to utilize more 
virtual training options to help reduce travel expenses.
    The 2023 budget request for travel is estimated to be $24.4 
million, or a 17.5 percent increase compared to the 2022 level. This 
increase reflects the return to a full-year of travel spending without 
pandemic-related restrictions and supports travel for a national 
training conference for all employees.

Rent, Communications, and Utilities

    The 2022 budget includes $5.2 million for rent, communications, and 
utilities. This is a $2.0 million decrease, or 28.2 percent less than 
the 2021 Board-approved budget. The Rent, Communications, and Utilities 
budget funds the agency's telecommunications and information technology 
network expenses and facility rental costs.
    Telecommunication charges include leased data lines, domestic and 
international voice (including mobile), and other network charges. 
Telecommunication costs also include the circuits and any associated 
usage fees for providing voice or data telecommunications service 
between data centers, office locations, the internet, and any customer, 
supplier, or partner.
    The 2022 budget includes funding to support procurement of 
additional circuits and express routers for Microsoft365 
implementation, the agency's data connectivity at NCUA disaster 
recovery sites, and transition to the GSA-managed Enterprise 
Infrastructure Solutions. EIS is the federal government's contract for 
enterprise telecommunications and networking solutions. By 
transitioning to EIS, the NCUA will benefit from the comprehensive 
solution EIS provides to address all aspects of federal agency IT, 
telecommunications, and infrastructure requirements. This new 
acquisition strategy with a new vendor reduced the agency's annual 
telecommunications by approximately $2.2 million, accounting for most 
of the Rent, Communications, and Utilities budget decrease compared to 
2021. Other cost reductions were attributed to a new award for Federal 
Relay Services, saving $170,000.
    Office building leases, meeting space rentals, office utilities, 
and postage expenses are also included in this budget category. 
Facility costs are approximately $720,000 in 2022 for office space 
rental for the Western Region, insurance, and ancillary costs for the 
NCUA Central Office. The annual utility costs for the Central Office 
and regional offices are estimated at $453,000.
    The 2022 budget also includes $686,000 for event rental costs for 
examiner meetings, a leadership conference, three roundtable events, 
and credit union examiner training events.
    The 2023 budget request for the Rent, Communications, and Utilities 
category is estimated to be $5.4 million, or a 4.0 percent increase 
compared to 2022. The $200,000 increase is primarily associated with 
audio-visual and telecommunication expenses for the planned NCUA 
national training conference.

Administrative Expenses

    The 2022 budget includes $5.8 million for administrative expenses. 
This is a decrease of $241,000, or 4.0 percent, compared to the 2021 
Board-approved budget. Recurring costs in the Administrative Expenses 
category include the annual reimbursement to the Federal Financial 
Institutions Examination Council, employee relocation expenses, 
recruitment and advertising expenses, shipping, printing, 
subscriptions, examiner training and meeting supplies, office 
furniture, and employee supplies and materials.
    As part of the FFIEC, the NCUA shares in costs for joint actions 
and services that affect the financial services industry. The FFIEC 
costs are estimated to be $82,000 lower in 2022 than 2021 for a total 
NCUA cost sharing payment of $1.3 million.
    The ongoing use of telework in 2022 is expect to lower supplies, 
materials, and subscription costs for an estimated savings of $294,000 
compared with the 2021 budget.
    The 2022 budget includes $1.0 million for employee relocations, an 
increase of $250,000 compared to the 2021 budget. Relocation costs are 
paid by the NCUA to employees who are

[[Page 67259]]

competitively selected for a promotion or new job within the agency in 
a different geographic area than where they live.
    The 2023 budget request for Administrative Services is estimated to 
be $6.0 million, or a 3.9 percent increase to support administrative 
expenses for the planned NCUA national training conference.

Contracted Services

    The 2022 budget includes $36.7 million for contracted services. 
This is a $11.6 million decrease, or 23.9 percent, compared to the 2021 
Board-approved budget. However, $23.0 million of unspent budget amounts 
from prior years will be used to pay for 2022 contracted services 
expenses. Therefore, the total planned budget for contracted services 
in 2022 is approximately $59.7 million.
    The Contracted Services budget category includes the agency's costs 
incurred when products and services are acquired in the commercial 
marketplace. Acquiring specific expertise or services from contract 
providers is often the most cost-effective approach to fulfill the 
NCUA's mission. Such services include critical mission support, such as 
information technology equipment and software development, accounting 
and auditing services, and specialized subject matter expertise that 
enable staff to focus on core mission execution.
    The majority of funding in the Contracted Services category 
supports the NCUA's robust supervision framework and includes funding 
for tools used to identify and resolve risk concerns such as interest 
rate risk, credit risk, and industry concentration risk, as well as by 
addressing new and evolving operational risks such as cybersecurity 
threats. Growth in the contracted services budget category results 
primarily from new operations and maintenance costs associated with 
capital investments, such as the Examination and Supervision Solution 
system, which is commonly known as MERIT. Other costs include core 
agency business operation systems such as accounting and payroll 
processing, and various recurring costs, as described in the following 
seven major categories:

 Information Technology Operations and Maintenance (54.4 
percent of contracted services)
    [cir] IT network support services and help desk support
    [cir] Contractor program and web support and network and equipment 
maintenance services
    [cir] Administration of software products such as Microsoft Office, 
Share Point, and audio visual services
 Administrative Support and Other Services (12.9 percent of 
contracted services)
    [cir] Examination and Supervision program support
    [cir] Technical support for examination and cybersecurity training 
programs
    [cir] Equipment maintenance services
    [cir] Legal services and other expert consulting support
    [cir] Other administrative mission support services for the NCUA 
central office
 Accounting, Procurement, Payroll, and Human Resources Systems 
(5.5 percent of contracted services)
    [cir] Accounting and procurement systems and support
    [cir] Human resources, payroll, and employee services
    [cir] Equal employment opportunity and diversity programs
 Building Operations, Maintenance, and Security (7.0 percent of 
contracted services)
    [cir] Central office facility operations and maintenance
    [cir] Building security and continuity programs
    [cir] Personnel security and administrative programs
 Information Technology Security (9.9 percent of contracted 
services)
    [cir] Enhanced secure data storage and operations
    [cir] Information security programs
    [cir] Security system assessment services
 Training (6.9 percent of contracted services)
    [cir] Examiner staff, technical and specialized training and 
development
    [cir] Senior executive and mission support staff professional 
development
 Audit and Financial Management Support (3.4 percent of 
contracted services)
    [cir] Annual audit support services
    [cir] Material loss reviews
    [cir] Investigation support services
    [cir] Financial management support services

    The following pie chart illustrates the breakout of the seven 
categories for the total 2022 Contracted Services budget of $59.7 
million, with $36.7 million funded from 2022, and $23.0 million funded 
from prior year available balances.

[[Page 67260]]

[GRAPHIC] [TIFF OMITTED] TN24NO21.013

    Note: Minor rounding differences may occur in totals.
    Major programs within the contracted services category include:
     Training requirements for the examiner workforce. The 
NCUA's most important resource is its highly educated, experienced, and 
skilled workforce. It is important that staff have the proper 
knowledge, skills, and abilities to perform assigned duties and meet 
emerging needs. Each year, examiners complete a wide range of training 
classes to ensure their skills and industry knowledge are kept up to 
date, including in core areas such as capital markets, consumer 
compliance, and specialized lending. Major training deliverables for 
2022 include classes offered by the Federal Financial Institutions 
Examination Council, updated examiner classes, and subject matter 
expert training sessions for the NCUA examiners. All examiner courses 
will be updated to reflect changes from the AIRES to MERIT systems.
    Contracted service providers, in partnership with the NCUA subject 
matter experts, will develop and design training classes for examiners 
and continue work on the triennial review of the NCUA's Subject Matter 
Examiner (SME) course curriculum. The NCUA's new Talent Management 
System will continue to be updated to refine the current online 
courses. Additionally, contracted service providers and central office 
staff will continue conducting organizational development, leadership, 
and teambuilding training.
     Information security program. This NCUA program supports 
ongoing efforts to strengthen the agency's cybersecurity and ensure its 
compliance with the Federal Information System Management Act.
     Agency financial management services, human resources 
technology support, and payroll services. The NCUA contracts for these 
back-office support services with the U.S. Department of 
Transportation's Enterprise Service Center (DOT/ESC) and the General 
Services Administration. The NCUA's human resource system, HR Links, 
also adopted by other federal agencies, is a shared solution that 
automates routine human resource tasks and improves time and attendance 
functionality.
     Audit. The NCUA Office of Inspector General contracts with 
an accounting firm to conduct the annual audit of the agency's four 
permanent funds. The results of these audits are posted annually on the 
NCUA website and also included as part of the agency's Annual Report.
    A significant share of the budget for the Contracted Services 
category finances ongoing information technology infrastructure support 
for the agency. The 2022 budget includes the second year of funding for 
operations and maintenance of the MERIT system, which replaced the 
legacy AIRES examination system in 2021. Several other of the NCUA's 
core information technology systems and processes also require 
additional contract support in 2022, which results in increased budgets 
in the Contracted Services category, as described below.
    Within the budget for the Office of Chief Information Officer 
(OCIO), an additional $10.9 million compared to the 2021 budget level 
is required for:
     Information technology infrastructure operations and 
maintenance labor support for MERIT and other NCUA legacy systems;
     Application tools that support the new MERIT system and 
other mission critical and business applications; and
     Enhanced cybersecurity operations to support the 
implementation of the Executive Order on Improving the Nation's 
Cybersecurity.
    Within the Office of Human Resources, contracted services increase 
by $335,000 compared to the 2021 budget level, primarily for program 
support for human resource capital and workforce programs, projects, 
training support, and management systems.
    Within the Office of Credit Union Resources and Expansion, 
contracted services increase by $450,000 compared to the 2021 budget 
level. Of this amount, $350,000 will support a new initiative to 
support small credit unions, while $100,000 will be used to support the 
NCUA's grants program and other activities that cultivate small, 
minority-designated, and low-income-designated credit unions.
    The Office of Minority Women and Inclusion's (OMWI) contract budget 
increases by $223,000 compared to the 2021 budget level. This increase 
will help OMWI achieve the goals established in the agency's Diversity 
and Inclusion Strategic Plan to promote diversity and inclusion within 
the agency and the credit union industry

[[Page 67261]]

and ensure equal opportunity in accordance with the mandates of Section 
342 of the Dodd-Frank Act. OMWI expects to host an in-person Diversity 
Equity and Inclusion Summit in 2022 to bring together credit union 
professionals to: Promote the value of diversity, equity, and inclusion 
for credit unions; share best diversity, equity, and inclusion 
practices; and develop solutions to industry-specific challenges in 
this arena. Additionally, OMWI expects to automate a critical internal 
business process to ensure the agency can respond efficiently to 
federally mandated Equal Employment Opportunity Commission management 
directives.
    Within the Office of the Chief Financial Officer, 2022 contracted 
service reductions of $369,000 compared to the 2021 budget level are 
associated with decreased operational costs for administrative and 
logistical support (e.g., mail, distribution, copying) and reductions 
of one-time 2021 contract items. In addition, parking expenses for 
Central Office staff are reduced in anticipation of an increase in 
employee telework.
    Contracted services spending for 2023 is estimated at $59.9 
million, roughly the same as 2022. Because unspent prior-year budgets 
are not expected to be available again in 2023, the Contracted Services 
budget increases by $23.0 million between 2022 and 2023.

VI. Capital Budget

Overview

    Annually, the NCUA carries out a rigorous review process to 
identify the agency's needs for information technology (IT), facility 
improvements and repairs, and other multi-year capital investments. The 
NCUA staff review the agency's inventory of owned facilities, 
equipment, IT systems, and IT hardware to determine what requires 
repair, major renovation, or replacement. The staff then make 
recommendations for prioritized investments to the NCUA Board.
    IT systems and hardware require significant capital expenditures 
for modern organizations. The 2022 budget continues the NCUA's multi-
year investment in current and replacement IT systems. The budget fully 
supports the NCUA's effort to modernize its IT infrastructure and 
applications, including the first full year for field staff to use 
MERIT, which is the NCUA's Examination and Supervision Solution (ESS) 
project that replaces the legacy Automated Integrated Regulatory 
Examination System. Other IT investments include the deployment of new 
laptops on the Windows 11 platform, ongoing enhancements and upgrades 
to decades-old legacy systems, network servers, and systems to ensure 
the agency's cybersecurity posture complies with Executive Order 14208, 
and various hardware investments to refresh agency networks and ensure 
staff have the tools necessary to maintain and increase their 
productivity.
    Routine repairs and lifecycle-driven property renovations are also 
necessary to properly maintain investments in the NCUA-owned 
properties. The NCUA Facilities Manager assesses the agency's 
properties to determine the need for essential repairs, replacement of 
building systems that have reached the end of their engineered lives, 
or renovations required to support changes in the agency's 
organizational structure or address revisions to building standards and 
codes.
    The NCUA's staff draft 2022 capital budget is $13.1 million. The 
capital budget funds the NCUA's long-term investments. The 2022 capital 
budget provides $3.3 million for IT software development projects and 
$8.3 million in other IT investments for 2022. The NCUA facilities 
require $1.5 million in capital investments.
[GRAPHIC] [TIFF OMITTED] TN24NO21.014

    Detailed descriptions of all 2022 capital projects, including a 
discussion of how each project helps the agency achieve its goals and 
objectives, are provided in Appendix B.

Summary of Capital Projects

Examination and Supervision Solution and Infrastructure Hosting ($0.9 
Million)
    The purpose of the Examination and Supervision Solution and 
Infrastructure Hosting (ESS&IH) project is to deliver a new, flexible, 
technical foundation to enable current and future NCUA business process 
modernization initiatives. ESS&IH replaces the NCUA's legacy 
examination system, AIRES, with the new MERIT system. In 2021, all NCUA 
examiners were trained to use the new MERIT system. MERIT was fully 
deployed to all NCUA examiners in the fall of 2021. In 2022, capital 
investments in ESS&IH will allow the NCUA to address system bugs 
reported by the broader user base, continue to enhance MERIT and the 
ESS suite of applications based on user feedback, and bring additional 
NCUA applications onto NCUA Connect to leverage this new enterprise 
service to meet multi-factor authentication security requirements.
Data Reporting Solution (DRS) ($0.7 Million)
    The purpose of this project is to support the NCUA's Enterprise 
Solution Modernization (ESM) program. The DRS is part of the 
overarching Enterprise System Modernization (ESM) program, and focused 
on implementing a business intelligence (BI) solution for enhanced data 
access, integrity, analytics and reporting. DRS will provide a modern 
self-service BI tool for the enterprise, as well as access to data

[[Page 67262]]

to enable staff to efficiently and effectively utilize the tool. DRS 
leverages other key modernization initiatives: The Enterprise Central 
Data Repository (ECDR), the new enterprise data integration point and 
platform to support data and analytic initiatives, as well as expanded 
examination data in MERIT.
Enterprise Data Program ($0.4 Million)
    The purpose of this project is the centralization, organization, 
and storage of the NCUA's data. The primary goal is to enable the NCUA 
to manage enterprise data as a strategic asset through its full 
lifecycle (create/collect, manage/move, consume, dispose). For 2022, 
the Enterprise Data Program (EDP) capital funds will be used to improve 
the agency's effectiveness by maturing data management practices. This 
will help ensure the use of high-quality data in operations, reporting, 
and analytics. This is a highly collaborative effort to facilitate 
alignment across offices and will make data-related work more effective 
and efficient.
NCUA Website Development ($0.1 Million)
    This project provides ongoing improvements to the website, such as 
an improved user experience, and supports the ongoing maintenance needs 
of the agency's public websites: NCUA.gov and MyCreditUnion.gov.
Significant Regulatory Changes ($1.0 Million)
    These funds will allow for applications and databases to be updated 
to accommodate any regulatory changes going into effect in 2022, which 
can impact multiple legacy systems. These changes can be significant, 
requiring additional time and resources to ensure affected systems are 
updated before final regulations become effective. Examples of Board-
approved initiatives from 2021 include: Adding the sensitivity or ``S'' 
component rating to the existing CAMEL system and approval of the 
Current Expected Credit Losses (CECL) Phase-in Final Rule in June of 
2021.
Credit Union Locator and Research a Credit Union Updates ($0.2 Million)
    The current CU Locator and Research a Credit Union websites are 
public-facing websites that can be accessed through NCUA.gov. Both 
websites are used externally by credit unions, credit union members, 
and the public. These websites are not currently optimized for use on 
mobile devices, nor Section 508 compliant. This investment will update 
both CU Locator and Research a Credit Union websites to make them 
responsive for mobile devices (e.g., automatically resize to the screen 
size of a phone or tablet), Section 508 compliant, and add 
functionalities based upon requirements gathered.
Enterprise Laptop Refresh ($5.0 Million)
    The agency's current laptops are more than four years old and in 
need of replacement. This capital investment will fund (1) the 
selection of new, standard laptop configurations, (2) testing the new 
laptops and operating system with the NCUA's existing business and 
productivity applications, network, and peripherals (e.g., keyboards, 
printers and scanners), (3) device acquisition, and (4) the deployment 
of the new devices to all NCUA employees and contractors.
Information Technology Infrastructure, Platform and Security Refresh 
($1.6 Million)
    The purpose of the Information Technology (IT) Infrastructure, 
Platform and Security Refresh project is to replace outdated or end-of-
life network and platform hardware, as well as to prepare the NCUA for 
cloud computing adoption. This investment helps ensure business 
continuity and efficient operations by improving system availability 
and stability.
Hybrid Work Environment Updates ($0.3 Million)
    The NCUA's current inventory of Voice over Internet Protocol (VoIP) 
desk and speaker phones are end-of-life and will be replaced in 2022. 
This investment will provide Microsoft Teams-compatible VoIP speaker 
phones. This project will also integrate the reservation system for the 
conference rooms into the NCUA's M365 service platform.
Executive Order on Improving the Nation's Cybersecurity ($1.4 Million)
    This investment will ensure the NCUA complies with Executive Order 
14208, Improving the Nation's Cybersecurity. The project funds will 
enable the NCUA to accelerate (1) implementation of Multi-Factor 
Authentication (MFA) for all NCUA applications, (2) use of a zero-trust 
architecture for the NCUA's infrastructure and applications, and (3) 
transition of computing and storage resources from on-premise to a 
cloud service provider.
Central Office Heating, Ventilation, and Air Conditioning (HVAC) System 
Replacement ($1.5 Million)
    The NCUA central office HVAC system replacement project will 
replace all HVAC systems in the headquarters building, including 
cooling towers, air handlers, boilers, and all other HVAC components. 
The current HVAC system is original to the facility--it is 29 years 
old, obsolete, and some component parts are no longer available. HVAC 
systems are the biggest users of electricity in a facility, and the 
anticipated life span of major system components is approximately 20 to 
25 years. The current system is at the end of its useful life, and it 
is not working efficiently. In recent years, the maintenance and 
operating costs have increased considerably and system components are 
failing more frequently, which are clear signs of decreased 
reliability.

VII. Share Insurance Fund Administrative Budget

Overview

    The Share Insurance Fund Administrative Budget funds direct costs 
associated with authorized Share Insurance Fund activities.\20\ Direct 
costs to the Share Insurance Fund include items such as data 
subscriptions and technology tools for ONES analysis of large credit 
unions, travel for state examiners attending NCUA-sponsored training, 
and audit support for the Share Insurance Fund's financial statements. 
Beginning in 2022 the Share Insurance Fund Administrative Budget will 
also include certain insurance-related expenses for AMAC operations.
---------------------------------------------------------------------------

    \20\ Direct costs are exclusive of any costs that are shared 
with the Operating Fund through the Overhead Transfer Rate, and with 
payments available upon requisition by the Board, without fiscal 
year limitation, for insurance under section 1787 of this title, and 
for providing assistance and making expenditures under section 1788 
of this title in connection with the liquidation or threatened 
liquidation of insured credit unions as it may determine to be 
proper.
---------------------------------------------------------------------------

    The Share Insurance Fund Administrative Budget also pays for costs 
associated with the Corporate System Resolution Program and related NGN 
program. On June 14, 2021, the last outstanding NGN Trust matured. Most 
of the remaining Corporate System Resolution Program assets held by the 
NCUA will be sold in 2022. The budget for the NGN program therefore 
decreases in 2022 compared to the 2021 NGN funding levels.

Budget Requirements and Description

    The 2022 Share Insurance Fund Administrative budget is estimated to 
be

[[Page 67263]]

$6.2 million, which is $1.7 million, or 21.7 percent, less than 2021.
    The 2022 budget decrease is primarily driven by phase out of the 
NGN program. Therefore the expenses required to maintain the program 
decrease compared to 2021.
    The 2023 requested budget supports similar workload and resources 
for Share Insurance Fund direct expenses, which are expected to remain 
the same as 2022 at $4.8 million, and includes no NGN related costs.

Share Insurance Fund Direct Expenses

    Direct expenses to the Share Insurance Fund are estimated to be 
$4.8 million in 2022, an increase of $0.3 million, or 7.4 percent, 
compared to the 2021 budget level.
    Direct charges to the Share Insurance Fund include $2 million for 
operating and maintenance costs of the Asset and Liabilities Management 
system (ALM), which allows the NCUA to build internal analytical 
capabilities to conduct supervisory stress testing analyses and to 
perform other quantitative risk assessments of large credit unions.
    In 2022 the Share Insurance Fund will begin paying for certain 
insurance-related activities and expenses of AMAC. The Share Insurance 
Fund budget includes $0.4 million for these AMAC activities, such as 
consulting expenses necessary to prevent or attempt to prevent a 
liquidation or conservatorship, staff travel for consultation on 
complex or problem cases, and an initial review of the successes and 
challenges of the Corporate System Resolution Program.
    The 2022 budget also includes funds related to the supervisory 
responsibilities that the NCUA shares with State Supervisory 
Authorities (SSAs). The Share Insurance Fund Administrative Budget 
includes $1.2 million for state examiner travel to NCUA-sponsored 
training classes, and $0.2 million to ensure that SSAs can use the full 
functionality of the recently deployed MERIT examination system. The 
2021 budget included similar amounts for these activities.
    Finally, the Share Insurance Fund Administrative Budget includes 
$0.9 million for the related annual financial audit and for contractor 
support to ensure effective internal controls for the fund.

NGN Program

    In 2017 the Board voted to close the Temporary Corporate Credit 
Union Stabilization Fund. Since 2018 the Share Insurance Fund has 
funded the NGN program and related administrative costs to include 
employee pay, benefits, travel, and contract support required to 
support the program.
    The NGN program will substantially conclude in 2022, and the 2022 
budget for this program decreases as a result. The NGN budget falls in 
2022 by almost 60 percent, to $1.5 million from $3.5 million in 2021. 
The largest expenses remaining in this budget include $0.5 million for 
employee compensation and $0.6 million for third-party valuation 
services required for the remaining legacy assets. The five positions 
associated with the NGN program will be eliminated.
    Because the NGN program will wind down in 2022, there will be no 
NGN budget in 2023.
BILLING CODE 7535-01-P
[GRAPHIC] [TIFF OMITTED] TN24NO21.015


[[Page 67264]]


[GRAPHIC] [TIFF OMITTED] TN24NO21.016

BILLING CODE 7535-01-C

VIII. Financing the NCUA Programs

Overview

    The NCUA incurs various expenses to achieve its statutory mission, 
including those involved in examining and supervising federally insured 
credit unions. The NCUA Board adopts an Operating Budget, a Capital 
Budget, and a Share Insurance Fund Administrative Budget each year to 
fund the vast majority of the costs of operating the agency.\21\ When 
formulating the annual budget, the NCUA is mindful that its operating 
funding comes from credit unions. The agency strives to ensure the 
agency operates in an efficient, effective, transparent, and fully 
accountable manner.
---------------------------------------------------------------------------

    \21\ Some costs are directly charged to the Share Insurance Fund 
when appropriate to do so. For example, costs for training and 
equipment provided to State Supervisory Authorities are directly 
charged to the Share Insurance Fund.
---------------------------------------------------------------------------

    The Federal Credit Union Act authorizes two primary sources to fund 
the Operating Budget:

    1. Requisitions from the Share Insurance Fund ``for such 
administrative and other expenses incurred in carrying out the 
purposes of [Title II of the Act] as [the Board] may determine to be 
proper''; \22\ and
---------------------------------------------------------------------------

    \22\ 12 U.S.C. 1783(a).
---------------------------------------------------------------------------

    2. ``fees and assessments (including income earned on insurance 
deposits) levied on insured credit unions under [the Act].'' \23\
---------------------------------------------------------------------------

    \23\ 12 U.S.C. 1766(j)(3). Other sources of income for the 
Operating Budget have included interest income, funds from 
publication sales, parking fee income, and rental income.

    Among the fees levied under the Act are annual Operating Fees, 
which are required for federal credit unions under 12 U.S.C. 1755 ``and 
may be expended by the Board to defray the expenses incurred in 
carrying out the provisions of [the Act,] including the examination and 
supervision of [federal credit unions].''
    Taken together, these authorities effectively require the Board to 
determine which expenses are appropriately paid from each source while 
giving the Board broad discretion in allocating expenses.
    In 1972, the Government Accountability Office recommended the NCUA 
adopt a method for allocating Operating Budget costs--that is, the 
portion of the NCUA's budget funded by requisitions from the Share 
Insurance Fund and the portion covered by Operating Fees paid by 
federal credit unions.\24\ The NCUA has since used an allocation 
methodology known as the Overhead Transfer Rate (OTR) to

[[Page 67265]]

determine how much of the Operating Budget to fund with a requisition 
from the Share Insurance Fund.
---------------------------------------------------------------------------

    \24\ http://www.gao.gov/assets/210/203181.pdf.
---------------------------------------------------------------------------

    The NCUA uses the OTR methodology to allocate agency expenses 
between these two primary funding sources. Specifically, the OTR is the 
formula the NCUA uses to allocate insurance-related expenses to the 
Share Insurance Fund under Title II of the Act. Almost all other 
operating expenses are funded through collecting annual Operating Fees 
paid by federal credit unions.\25\
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    \25\ Annual Operating Fees must ``be determined according to a 
schedule, or schedules, or other method determined by the NCUA Board 
to be appropriate, which gives due consideration to the expenses of 
the [NCUA] in carrying out its responsibilities under the [Act] and 
to the ability of [FCUs] to pay the fee.'' 12 U.S.C. 1755(b).
---------------------------------------------------------------------------

    Two statutory provisions directly limit the Board's discretion with 
respect to Share Insurance Fund requisitions for the NCUA's Operating 
Budget and, hence, the OTR. First, expenses funded from the Share 
Insurance Fund must carry out the purposes of Title II of the Act, 
which relate to share insurance.\26\ Second, the NCUA may not fund its 
entire Operating Budget through charges to the Share Insurance 
Fund.\27\ The NCUA has not imposed additional policy or regulatory 
limitations on its discretion for determining the OTR.
---------------------------------------------------------------------------

    \26\ 12 U.S.C. 1783(a).
    \27\ The Act in 12 U.S.C. 1755(a) states, ``[i]n accordance with 
rules prescribed by the Board, each [federal credit union] shall pay 
to the [NCUA] an annual operating fee which may be composed of one 
or more charges identified as to the function or functions for which 
assessed.'' See also 12 U.S.C. 1766(j)(3).
---------------------------------------------------------------------------

Overhead Transfer Rate (OTR)

    The NCUA conducts a comprehensive workload analysis annually. This 
analysis estimates the amount of time necessary to conduct examinations 
and supervise federally insured credit unions in order to carry out the 
NCUA's dual mission as insurer and regulator. This analysis starts with 
a field-level review of every federally insured credit union to 
estimate the number of workload hours needed for the current year. 
These estimates are informed by the overall parameters of the NCUA's 
examination program, as most recently updated by the Exam Flexibility 
Initiative approved by the Board.\28\ The workload estimates are then 
refined by regional managers and submitted to the NCUA headquarters for 
the annual budget proposal. The OTR methodology accounts for the costs 
of the NCUA, not the costs of state regulators. Therefore, there are no 
calculations made for state examiner hours.
---------------------------------------------------------------------------

    \28\ The Exam Flexibility Initiative started with the January 1, 
2017, examination cycle, and it allows for extended examination 
cycles for eligible credit unions. Letters to Credit Unions 16-CU-
12, December 2016.
---------------------------------------------------------------------------

    There have not been any major changes to the parameters of the 
examination program since the current OTR methodology went into 
effect.\29\ The minor variations in the OTR since 2018 are the result 
of routine, small fluctuations in the variables that affect the OTR, 
including normal fluctuations in the workload budget from one calendar 
year to the next.
---------------------------------------------------------------------------

    \29\ On November 16, 2017, the NCUA Board adopted a new 
methodology for calculating the OTR starting with the 2018 OTR. 82 
FR 55644, November 22, 2017.
---------------------------------------------------------------------------

    The NCUA Board approved the current methodology for calculating the 
OTR at its November 2017 open meeting.\30\ In 2020, the Board published 
in the Federal Register a request for comment regarding the OTR 
methodology but did not propose or adopt any changes to the current 
methodology.\31\ The OTR is designed to cover the NCUA's costs of 
examining and supervising the risk to the Share Insurance Fund posed by 
all federally insured credit unions, as well as the costs of 
administering the fund. The OTR represents the percentage of the 
agency's operating budget paid for by a transfer from the Share 
Insurance Fund. Federally insured credit unions are not billed for and 
do not have to remit the OTR amount; instead, it is transferred 
directly to the Operating Fund from the Share Insurance Fund. This 
transfer, therefore, represents a cost to all federally insured credit 
unions.
---------------------------------------------------------------------------

    \30\ 82 FR 55644 (Nov. 22, 2017).
    \31\ https://www.federalregister.gov/documents/2020/08/31/2020-17009/request-for-comment-regarding-national-credit-union-administration-overhead-transfer-rate.
---------------------------------------------------------------------------

    The OTR formula uses the following underlying principles to 
allocate agency operating costs:

    1. Time spent examining and supervising federal credit unions is 
allocated as 50 percent insurance related.\32\
---------------------------------------------------------------------------

    \32\ The 50 percent allocation mathematically emulates an 
examination and supervision program design where the NCUA would 
alternate examinations, and/or conduct joint examinations, between 
its insurance function and its prudential regulator function if they 
were separate units within the NCUA. It reflects an equal sharing of 
supervisory responsibilities between the NCUA's dual roles as 
charterer/prudential regulator and insurer given both roles have a 
vested interest in the safety and soundness of federal credit 
unions. It is consistent with the alternating examinations the FDIC 
and state regulators conduct for insured state-chartered banks as 
mandated by Congress. Further, it reflects that the NCUA is 
responsible for managing risk to the Share Insurance Fund and 
therefore should not rely solely on examinations and supervision 
conducted by the prudential regulator.
---------------------------------------------------------------------------

    2. All time and costs the NCUA spends supervising or evaluating 
the risks posed by federally insured, state-chartered credit unions 
or other entities that the NCUA does not charter or regulate (for 
example, third-party vendors and Credit Union Service Organizations 
(CUSOs)) are allocated as 100 percent insurance related.\33\
---------------------------------------------------------------------------

    \33\ The NCUA does not charter state-chartered credit unions nor 
serve as their prudential regulator. The NCUA's role with respect to 
federally insured state-chartered credit unions is as insurer. 
Therefore, all examination and supervision work and other agency 
costs attributable to insured state-chartered credit unions is 
allocated as 100 percent insurance related.
---------------------------------------------------------------------------

    3. Time and costs related to the NCUA's role as charterer and 
enforcer of consumer protection and other non-insurance based laws 
governing the operation of credit unions (like field of membership 
requirements) are allocated as 0 percent insurance related.\34\
---------------------------------------------------------------------------

    \34\ As the federal agency with the responsibility to charter 
federal credit unions and enforce non-insurance related laws 
governing how credit unions operate in the marketplace, the NCUA 
resources allocated to these functions are properly assigned to its 
role as charterer/prudential regulator.
---------------------------------------------------------------------------

    4. Time and costs related to the NCUA's role in administering 
federal share insurance and the Share Insurance Fund are allocated 
as 100 percent insurance related.\35\
---------------------------------------------------------------------------

    \35\ The NCUA conducts liquidations of credit unions, insured 
share payouts, and other resolution activities in its role as 
insurer. Also, activities related to share insurance, such as 
answering consumer inquiries about insurance coverage, are a 
function of the NCUA's role as insurer.

    These four principles are applied to the activities and costs of 
the agency to determine the portion of the agency's budget that is 
funded by the Share Insurance Fund. Based on the Board-approved 
methodology and the proposed staff draft budget, the OTR for 2022 is 
110 basis points (1.1 percent) higher than 2021, and estimated to be 
63.4 percent. Thus, 63.4 percent of the total Operating Budget is 
estimated to be paid out of the Share Insurance Fund. The remaining 
36.6 percent of the Operating Budget is estimated to be paid for by 
Operating Fees collected from federal credit unions. The explicit and 
implicit distribution of total Operating Budget costs for federal 
credit unions and federally insured, state-chartered credit unions is 
outlined in the table below:

[[Page 67266]]

[GRAPHIC] [TIFF OMITTED] TN24NO21.017

    To determine the funds transferred from the Share Insurance Fund to 
the Operating Fund, the OTR is applied to actual expenses incurred each 
month. Therefore, the rate calculated by the OTR formula is multiplied 
by each month's actual operating expenditures and the product of that 
calculation is transferred from the Share Insurance Fund to the 
Operating Fund. This monthly reconciliation to actual operating 
expenditures captures the variance between actual and budgeted amounts, 
so when the NCUA's expenditures are less than budgeted, the amount 
charged to the Share Insurance Fund is also less--and those lower 
expenditures benefit both federally chartered and state chartered 
credit unions.
    The use of insured shares in calculating the OTR was eliminated 
from the OTR methodology adopted by the Board in 2017. However, insured 
shares are used for informational purposes to reflect the fundamental 
economics with respect to how the implicit costs of the OTR are borne 
by federal and state-chartered credit unions. Use of insured shares is 
consistent with the mutual nature of the Share Insurance Fund and part 
of the statutory scheme related to Share Insurance Fund deposits, 
premiums, and dividends.\36\ The number, size, and health of federal 
and state credit unions affects the NCUA's workload budget, which in 
turn is one of the variables in the OTR methodology.
---------------------------------------------------------------------------

    \36\ 12 U.S.C. 1782(c)(2) and (3).
---------------------------------------------------------------------------

    The primary driver of the increase in the estimated 2022 OTR is the 
proposed increase in examination and supervision time for federally 
insured credit unions that results from proposals in the staff draft 
budget to conduct annual examinations for certain credit unions, and 
other program obligations associated with examination scheduling and 
scope requirements. Normal fluctuations in the workload budget from one 
calendar year to the next are also variables that influence the change 
in the calculated OTR compared to previous years. Workload budget 
variables include, but are not limited to, changes in CAMEL ratings, 
the number and size of credit unions that meet the annual exam and 
extended exam eligibility criteria, credit unions with emerging risk 
indicators, variations in individual state regulator programs, one-time 
events (e.g., the implementation of the new MERIT examination system, 
COVID-19 pandemic economic impacts) and fluctuations in the timing of 
examinations related to a particular calendar year.
    CUSOs are at times subject to review during the examination of a 
federally insured credit union. The OTR methodology captures CUSO-
related time within the scope of the examination and supervision of 
federally insured credit unions under Principle 1 for federal credit 
unions and Principle 2 for federally insured state-chartered credit 
unions. The time designated for separate, standalone reviews of CUSOs 
and third-party vendors is accounted for separately in the NCUA's 
workload budget and is covered by Principle 2 only. The standalone 
review of CUSOs and third-party vendors is to identify and address risk 
to federally insured credit unions.
    The following chart illustrates the share of the Operating Budget 
paid by federal credit unions (FCUs, 68.3%) and federally insured, 
state-chartered credit unions (FISCUs, 31.7%).

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Operating Fee

    The Board delegated authority to the Chief Financial Officer to 
administer the methodology approved by the Board for calculating the 
Operating Fee and to set the fee schedule as calculated per the 
approved methodology. In 2020, the Board approved and published in the 
Federal Register several changes to the Operating Fee methodology, 
which form the basis for how the Operating Fee is calculated in this 
section.\37\
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    \37\ https://www.govinfo.gov/content/pkg/FR-2020-12-31/pdf/2020-28490.pdf.
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    To determine the annual Operating Fee assessed on federal credit 
unions, the NCUA first calculates the average of total assets reported 
in the preceding year's fourth quarter and the first three quarters of 
the current year, net of any reported Paycheck Protection Program (PPP) 
loans. Credit unions with assets less than $1 million are not assessed 
an Operating Fee and their assets are therefore excluded from this 
calculation.
    Based on the Board-approved Operating Fee methodology, which is 
summarized in the following tables, the share of the 2022 budget funded 
by the Operating Fee is $123.6 million. This equates to 0.0128 percent 
of the estimated actual average of federal credit union assets for the 
four quarters ending on September 30, 2021. The overall decrease for 
the Operating Fee would be 11.2 percent less than 2021, as shown on the 
table on page 59.
    As part of the Board-approved Operating Fee methodology, the NCUA 
can adjust the share of the budget funded by the Operating Fee based on 
an analysis of the agency's forward cash flow requirements compared to 
past years' collections that were not spent as planned. Any projected 
surplus cash from past years' fee collections not required to finance 
agency operations can accordingly be used to lower the Operating Fee 
share of the proposed budget. Because such cash surpluses result from 
past years' Operating Fee collections, they do not offset the portion 
of the budget funded by the Overhead Transfer Rate.
    To set the assessment scale for 2022, total growth in federal 
credit union assets is calculated as the change between the average of 
the four most-current quarters (i.e., the fourth quarter of 2020 and 
the first three quarters of 2021) and the previous four quarters (i.e., 
the fourth quarter of 2019 and the first three quarters of 2020), which 
is estimated to be 14.3 percent.\38\ Asset level dividing points are 
likewise increased by this same growth rate in order to preserve the 
same relative relationship of the scale to the applicable asset base.
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    \38\ For the staff draft budget, total assets are determined 
using the 2021 second quarter data based on actual call report data.
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BILLING CODE 7535-01-P

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Operating Fee Scale

    To illustrate the rate for each asset tier for which Operating Fees 
are charged, the tables below show the effect of the average 11.2 
percent decrease in the Operating Fee for natural person federal credit 
unions. The corporate federal credit union rate scale remains unchanged 
from prior years.
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IX. Appendix A: Supplemental Budget Information
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X. Appendix B: Capital Projects

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[FR Doc. 2021-25486 Filed 11-23-21; 8:45 am]
BILLING CODE 7535-01-C